WWhether through stocks, bonds, ETFs or other types of securities, all investors love to see their portfolios generate big returns. However, when you are an income investor, your main goal is to generate 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 focus on dividends. A dividend is the distribution of a company’s profits paid to shareholders; it is often viewed by its dividend yield, a measure that measures a dividend as a percentage of the current stock price. Numerous academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Focus on the first Bancshares in Mid-Illinois
First Mid-Illinois Bancshares (FMBH) is headquartered in Mattoon and engaged in the financial industry. The stock has seen a price change of 18.09% since the start of the year. The bank holding company currently pays a dividend of $ 0.2 per share, with a dividend yield of 2.06%. This compares to the Banks – Northeast industry return of 2% and the S&P 500 return of 1.33%.
In terms of dividend growth, the company’s current annualized dividend of $ 0.82 is up 1.2% from a year ago. In the past 5 years, First Mid-Illinois Bancshares has increased its dividend 4 times year over year for an average annual increase of 19.70%. Any future dividend growth will depend on both earnings growth and the payout ratio of the company; a payout ratio is the proportion of a company’s annual earnings per share that it pays out as a dividend. Right now, First Mid-Illinois’ payout ratio is 28%, which means it has paid out 28% of its past 12-month EPS as a dividend.
FMBH also expects an increase in profits for this exercise. Zacks’ consensus estimate for 2021 is $ 3.47 per share, with earnings expected to rise 28.52% from a year earlier.
Investors love dividends for a variety of reasons, ranging from tax benefits and lower overall portfolio risk to dramatically improving earnings from equity investments. But not all companies offer quarterly payment.
High-growth companies or tech start-ups, for example, rarely pay a dividend to their shareholders, while larger, more established companies with safer earnings are often seen as the best dividend options. During times of rising interest rates, income investors should be aware that high yielding stocks tend to struggle. With this in mind, FMBH is a compelling investment opportunity. Not only is this a big dividend game, the stock currently sits at Zacks rank of 3 (Hold).
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