All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
First Defiance Financial in Focus
Based in Defiance, First Defiance Financial (FDEF) is in the Finance sector, and so far this year, shares have seen a price change of -22.61%. The holding company for First Federal Bank of the Midwest is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 3.61% compared to the Financial - Savings and Loan industry's yield of 2.41% and the S&P 500's yield of 2.02%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.88 is up 11.4% from last year. Over the last 5 years, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.36%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First Defiance's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FDEF expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2.56 per share, with earnings expected to increase 1.19% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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, FDEF 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).