Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Investors Bancorp in Focus
Based in Short Hills, Investors Bancorp (ISBC) is in the Finance sector, and so far this year, shares have seen a price change of 1.22%. Currently paying a dividend of $0.12 per share, the company has a dividend yield of 3.98%. In comparison, the Financial - Savings and Loan industry's yield is 2.4%, while the S&P 500's yield is 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.48 is up 9.1% from last year. Over the last 5 years, Investors Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 21.43%. 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. Investors Bancorp's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ISBC for this fiscal year. The Zacks Consensus Estimate for 2020 is $0.94 per share, which represents a year-over-year growth rate of 22.08%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ISBC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).