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 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 tha t dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
NBT Bancorp in Focus
Headquartered in Norwich, NBT Bancorp (NBTB) is a Finance stock that has seen a price change of 7.05% so far this year. The financial holding company is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 2.81% compared to the Banks - Northeast industry's yield of 1.83% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $1.04 is up 5.1% from last year. In the past five-year period, NBT Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.58%. 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. NBT's current payout ratio is 40%. This 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, with earnings expected to increase 2.73% from the year ago period.
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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