All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 Defiance Financial in Focus
First Defiance Financial (FDEF) is headquartered in Defiance, and is in the Finance sector. The stock has seen a price change of 22.61% since the start of the year. The holding company for First Federal Bank of the Midwest is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.13% compared to the Financial - Savings and Loan industry's yield of 1.79% and the S&P 500's yield of 1.81%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.68 is up 36% from last year. First Defiance Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 21.64%. 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. First Defiance's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
FDEF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.21 per share, representing a year-over-year earnings growth rate of 25.57%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 must be conscious 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 FDEF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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First Defiance Financial Corp. (FDEF) : Free Stock Analysis Report
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