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Are You Looking for a High-Growth Dividend Stock? TowneBank (TOWN) Could Be a Great Choice

Zacks Equity Research

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.

TowneBank in Focus

TowneBank (TOWN) is headquartered in Portsmouth, and is in the Finance sector. The stock has seen a price change of -0.9% since the start of the year. The community bank is currently shelling out a dividend of $0.18 per share, with a dividend yield of 2.61%. This compares to the Banks - Southeast industry's yield of 1.85% and the S&P 500's yield of 1.78%.

In terms of dividend growth, the company's current annualized dividend of $0.72 is up 2.9% from last year. Over the last 5 years, TowneBank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.48%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. TowneBank's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.

TOWN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $1.97 per share, with earnings expected to increase 2.07% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 have to be mindful 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 TOWN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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