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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 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.
First Busey in Focus
Based in Champaign, First Busey (BUSE) is in the Finance sector, and so far this year, shares have seen a price change of 20.37%. The bank holding company is currently shelling out a dividend of $0.23 per share, with a dividend yield of 3.55%. This compares to the Banks - Midwest industry's yield of 2.4% and the S&P 500's yield of 1.29%.
In terms of dividend growth, the company's current annualized dividend of $0.92 is up 4.5% from last year. Over the last 5 years, First Busey has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.73%. 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. Right now, First Busey's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
BUSE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $2.09 per share, which represents a year-over-year growth rate of 5.56%.
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.
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. With that in mind, BUSE 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).