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.
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 that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Community in Focus
Headquartered in Lexington, First Community (FCCO) is a Finance stock that has seen a price change of 1.07% so far this year. Currently paying a dividend of $0.15 per share, the company has a dividend yield of 2.76%. In comparison, the Banks - Southeast industry's yield is 2.52%, while the S&P 500's yield is 1.57%.
Looking at dividend growth, the company's current annualized dividend of $0.60 is up 7.1% from last year. In the past five-year period, First Community has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.36%. 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. First Community's current payout ratio is 39%. This means it paid out 39% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FCCO for this fiscal year. The Zacks Consensus Estimate for 2024 is $1.67 per share, which represents a year-over-year growth rate of 7.74%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that FCCO 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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