All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
Peoples Bancorp in Focus
Headquartered in Marietta, Peoples Bancorp (PEBO - Free Report) is a Finance stock that has seen a price change of -26.72% so far this year. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 5.35%. In comparison, the Banks - Midwest industry's yield is 2.77%, while the S&P 500's yield is 2.18%.
In terms of dividend growth, the company's current annualized dividend of $1.36 is up 3% from last year. In the past five-year period, Peoples Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 23.37%. 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. Peoples Bancorp's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
PEBO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.77 per share, with earnings expected to increase 4.53% 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. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PEBO 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).