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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
West Bancorp in Focus
West Bancorp (WTBA - Free Report) is headquartered in West Des Moines, and is in the Finance sector. The stock has seen a price change of -39.8% since the start of the year. The holding company for West Bank is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 5.44% compared to the Financial - Savings and Loan industry's yield of 3.11% and the S&P 500's yield of 2.2%.
In terms of dividend growth, the company's current annualized dividend of $0.84 is up 1.2% from last year. In the past five-year period, West Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.03%. 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. West Bancorp's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WTBA expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2.05 per share, which represents a year-over-year growth rate of 17.82%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. 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 WTBA is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).