Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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
First Defiance Financial (FDEF - Free Report) is headquartered in Defiance, and is in the Finance sector. The stock has seen a price change of -38.93% since the start of the year. Currently paying a dividend of $0.22 per share, the company has a dividend yield of 4.58%. In comparison, the Financial - Savings and Loan industry's yield is 2.59%, while the S&P 500's yield is 2.31%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.88 is up 11.4% from last year. First Defiance Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years 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. Right now, First Defiance's payout ratio is 35%, which 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 $2.55 per share, with earnings expected to increase 0.79% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful 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).