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.
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.
Simmons First National in Focus
Based in Pine Bluff, Simmons First National (SFNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 4.35%. The bank holding company is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 2.54% compared to the Banks - Southeast industry's yield of 1.89% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $0.64 is up 6.7% from last year. Over the last 5 years, Simmons First National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.43%. 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. Simmons First National's current payout ratio is 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SFNC for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.45 per share, which represents a year-over-year growth rate of 3.38%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SFNC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).