Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 tha t dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
NBT Bancorp in Focus
Based in Norwich, NBT Bancorp (NBTB) is in the Finance sector, and so far this year, shares have seen a price change of 8.47%. The financial holding company is currently shelling out a dividend of $0.26 per share, with a dividend yield of 2.77%. This compares to the Banks - Northeast industry's yield of 1.83% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $1.04 is up 5.1% from last year. NBT Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.58%. 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, NBT's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NBTB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.63 per share, representing a year-over-year earnings growth rate of 2.73%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, NBTB 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).
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