Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
West Bancorp in Focus
Based in West Des Moines, West Bancorp (WTBA) is in the Finance sector, and so far this year, shares have seen a price change of -28%. Currently paying a dividend of $0.21 per share, the company has a dividend yield of 4.55%. In comparison, the Financial - Savings and Loan industry's yield is 3.24%, while the S&P 500's yield is 2.13%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.84 is up 1.2% from last year. In the past five-year period, West Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.03%. 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, West Bancorp's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WTBA for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.05 per share, representing a year-over-year earnings growth rate of 17.82%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. With that in mind, WTBA presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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