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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 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Financial Northwest in Focus
Headquartered in Renton, First Financial Northwest (FFNW) is a Finance stock that has seen a price change of 22.98% so far this year. The bank is paying out a dividend of $0.11 per share at the moment, with a dividend yield of 3.14% compared to the Banks - West industry's yield of 1.9% and the S&P 500's yield of 1.27%.
In terms of dividend growth, the company's current annualized dividend of $0.44 is up 10% from last year. First Financial Northwest has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 14.05%. 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, First Financial's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FFNW expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $0.98 per share, representing a year-over-year earnings growth rate of 11.36%.
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 must be conscious 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 FFNW is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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First Financial Northwest, Inc. (FFNW) : Free Stock Analysis Report
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