Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Farmers National Banc in Focus
Based in Canfield, Farmers National Banc (FMNB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -1.84%. Currently paying a dividend of $0.1 per share, the company has a dividend yield of 2.5%. In comparison, the Banks - Midwest industry's yield is 2.52%, while the S&P 500's yield is 1.82%.
Looking at dividend growth, the company's current annualized dividend of $0.40 is up 5.3% from last year. In the past five-year period, Farmers National Banc has increased its dividend 4 times on a year-over-year basis for an average annual increase of 33.24%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Farmers National's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FMNB expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $1.38 per share, which represents a year-over-year growth rate of 6.98%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FMNB is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).