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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
1st Source in Focus
Based in South Bend, 1st Source (SRCE) is in the Finance sector, and so far this year, shares have seen a price change of 11%. Currently paying a dividend of $0.36 per share, the company has a dividend yield of 2.22%. In comparison, the Banks - Midwest industry's yield is 2.99%, while the S&P 500's yield is 1.55%.
In terms of dividend growth, the company's current annualized dividend of $1.44 is up 2.9% from last year. 1st Source has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.14%. 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. Right now, 1st Source's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
SRCE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.82 per share, which represents a year-over-year growth rate of 6.01%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful 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 SRCE 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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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