Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
Horizon Bancorp in Focus
Headquartered in Michigan City, Horizon Bancorp (HBNC) is a Finance stock that has seen a price change of -8.01% so far this year. Currently paying a dividend of $0.16 per share, the company has a dividend yield of 3.34%. In comparison, the Banks - Northeast industry's yield is 2.36%, while the S&P 500's yield is 1.68%.
In terms of dividend growth, the company's current annualized dividend of $0.64 is up 20.8% from last year. Horizon Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 12.39%. 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. Horizon Bancorp's current payout ratio is 28%, meaning it paid out 28% of its trailing 12-month EPS as dividend.
HBNC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $2.28 per share, with earnings expected to increase 14% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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 HBNC 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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