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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Essa Bancorp in Focus
Based in Stroudsburg, Essa Bancorp (ESSA) is in the Finance sector, and so far this year, shares have seen a price change of 9%. The bank is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 2.94% compared to the Financial - Savings and Loan industry's yield of 2.41% and the S&P 500's yield of 1.35%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.48 is up 9.1% from last year. Essa Bancorp has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 6.92%. 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. Essa Bancorp's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ESSA expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $1.57 per share, with earnings expected to increase 12.95% from the year ago period.
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.
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, ESSA 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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