Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Arrow Financial in Focus
Headquartered in Glens Falls, Arrow Financial (AROW) is a Finance stock that has seen a price change of -13.94% so far this year. The bank holding company is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 3.2% compared to the Banks - Northeast industry's yield of 1.97% and the S&P 500's yield of 2.04%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.04 is up 2.3% from last year. Arrow Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 3.89%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Arrow Financial's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AROW for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.69 per share, representing a year-over-year earnings growth rate of 7.60%.
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, AROW 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).