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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.
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 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 4.33%. The bank is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.07%. This compares to the Financial - Savings and Loan industry's yield of 2.38% and the S&P 500's yield of 1.26%.
Looking at dividend growth, the company's 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 6.26%. 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. Right now, Essa Bancorp's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ESSA for this fiscal year. 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 many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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ESSA Bancorp, Inc. (ESSA) : Free Stock Analysis Report
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