All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Bryn Mawr Bank in Focus
Based in Bryn Mawr, Bryn Mawr Bank (BMTC) is in the Finance sector, and so far this year, shares have seen a price change of 11.88%. Currently paying a dividend of $0.25 per share, the company has a dividend yield of 2.02%. In comparison, the Banks - Northeast industry's yield is 1.58%, while the S&P 500's yield is 1.77%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 16.3% from last year. Bryn Mawr Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.29%. 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, Bryn Mawr Bank's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
BMTC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.13 per share, which represents a year-over-year growth rate of 29.34%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BMTC 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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