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 that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First United Corporation in Focus
First United Corporation (FUNC) is headquartered in Oakland, and is in the Finance sector. The stock has seen a price change of -8.66% since the start of the year. The company is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 2.86% compared to the Banks - Northeast industry's yield of 2.76% and the S&P 500's yield of 1.57%.
Looking at dividend growth, the company's current annualized dividend of $0.88 is up 7.3% from last year. In the past five-year period, First United Corporation has increased its dividend 3 times on a year-over-year basis for an average annual increase of 12.66%. 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 United's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FUNC expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $3.75 per share, representing a year-over-year earnings growth rate of 16.82%.
Bottom Line
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FUNC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
