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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Defiance Financial in Focus
Based in Defiance, First Defiance Financial (FDEF) is in the Finance sector, and so far this year, shares have seen a price change of 14.03%. The holding company for First Federal Bank of the Midwest is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.43%. This compares to the Financial - Savings and Loan industry's yield of 2.21% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 6.3% from last year. In the past five-year period, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.16%. 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. First Defiance's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
FDEF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.32 per share, which represents a year-over-year growth rate of 4.04%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. That said, they can take comfort from the fact that FDEF 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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First Defiance Financial Corp. (FDEF) : Free Stock Analysis Report
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