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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 Busey in Focus
Based in Champaign, First Busey (BUSE) is in the Finance sector, and so far this year, shares have seen a price change of 17.68%. The bank holding company is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 3.63% compared to the Banks - Midwest industry's yield of 2.35% and the S&P 500's yield of 1.25%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.92 is up 4.5% from last year. First Busey has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.73%. 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 Busey's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BUSE for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.09 per share, which represents a year-over-year growth rate of 5.56%.
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.
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, BUSE 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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