Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Unity Bancorp in Focus
Headquartered in Clinton, Unity Bancorp (UNTY) is a Finance stock that has seen a price change of -34.03% so far this year. The bank holding company is currently shelling out a dividend of $0.08 per share, with a dividend yield of 2.15%. This compares to the Banks - Northeast industry's yield of 2.11% and the S&P 500's yield of 2.51%.
Looking at dividend growth, the company's current annualized dividend of $0.32 is up 3.2% from last year. Unity Bancorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 25.93%. 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. Unity Bancorp's current payout ratio is 15%, meaning it paid out 15% of its trailing 12-month EPS as dividend.
UNTY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.20 per share, with earnings expected to increase 2.80% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. 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, UNTY 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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Unity Bancorp, Inc. (UNTY) : Free Stock Analysis Report
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