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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Farmers National Banc in Focus
Based in Canfield, Farmers National Banc (FMNB) is in the Finance sector, and so far this year, shares have seen a price change of -0.43%. The bank is currently shelling out a dividend of $0.1 per share, with a dividend yield of 2.46%. This compares to the Banks - Midwest industry's yield of 2.5% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $0.40 is up 5.3% from last year. In the past five-year period, Farmers National Banc has increased its dividend 4 times on a year-over-year basis for an average annual increase of 33.24%. 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. Farmers National's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
FMNB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $1.36 per share, with earnings expected to increase 5.43% 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. But, not every company offers 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. 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 FMNB 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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