Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Chemical Financial in Focus
Based in Midland, Chemical Financial (CHFC) is in the Finance sector, and so far this year, shares have seen a price change of 4.39%. The financial holding company is paying out a dividend of $0.34 per share at the moment, with a dividend yield of 2.44% compared to the Banks - Midwest industry's yield of 1.96% and the S&P 500's yield of 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.36 is up 23.6% from last year. In the past five-year period, Chemical Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.31%. 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. Chemical Financial's current payout ratio is 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CHFC expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.97 per share, with earnings expected to increase 29.74% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. That said, they can take comfort from the fact that CHFC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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