Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Business Financial Services in Focus
Headquartered in Madison, First Business Financial Services (FBIZ) is a Finance stock that has seen a price change of 7.68% so far this year. The bank holding company for First Business Bank and First Business Bank-Milwaukee is currently shelling out a dividend of $0.25 per share, with a dividend yield of 2.32%. This compares to the Banks - Midwest industry's yield of 2.83% and the S&P 500's yield of 1.59%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 9.9% from last year. First Business Financial Services has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.20%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First Business Financial Services's current payout ratio is 22%, meaning it paid out 22% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FBIZ for this fiscal year. The Zacks Consensus Estimate for 2024 is $4.71 per share, representing a year-over-year earnings growth rate of 8.78%.
Bottom Line
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.
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. With that in mind, FBIZ 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
