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.
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.
ServisFirst Bancshares in Focus
Headquartered in Birmingham, ServisFirst Bancshares (SFBS - Free Report) is a Finance stock that has seen a price change of -17.57% so far this year. The holding company for ServisFirst Bank is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.25%. This compares to the Financial - Savings and Loan industry's yield of 2.77% and the S&P 500's yield of 2.67%.
In terms of dividend growth, the company's current annualized dividend of $0.70 is up 12% from last year. In the past five-year period, ServisFirst Bancshares has increased its dividend 5 times on a year-over-year basis for an average annual increase of 56.23%. 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. ServisFirst's current payout ratio is 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SFBS for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.90 per share, with earnings expected to increase 5.84% 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. 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. That said, they can take comfort from the fact that SFBS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).