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.
West Bancorp in Focus
Based in West Des Moines, West Bancorp (WTBA) is in the Finance sector, and so far this year, shares have seen a price change of -8%. The holding company for West Bank is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 3.56% compared to the Financial - Savings and Loan industry's yield of 2.4% and the S&P 500's yield of 1.75%.
In terms of dividend growth, the company's current annualized dividend of $0.84 is up 1.2% from last year. Over the last 5 years, West Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.75%. 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, West Bancorp's payout ratio is 48%, which means it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WTBA expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2 per share, with earnings expected to increase 14.94% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, WTBA is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).