Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Horizon Bancorp in Focus
Based in Michigan City, Horizon Bancorp (HBNC) is in the Finance sector, and so far this year, shares have seen a price change of -3.21%. The bank holding company is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 3.17% compared to the Banks - Northeast industry's yield of 2.44% and the S&P 500's yield of 1.6%.
In terms of dividend growth, the company's current annualized dividend of $0.64 is up 20.8% from last year. Over the last 5 years, Horizon Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.39%. 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. Right now, Horizon Bancorp's payout ratio is 28%, which means it paid out 28% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HBNC expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $2.28 per share, representing a year-over-year earnings growth rate of 14%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. With that in mind, HBNC 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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