Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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.
1st Source in Focus
Headquartered in South Bend, 1st Source (SRCE) is a Finance stock that has seen a price change of 14.44% so far this year. The holding company for 1st Source Bank is paying out a dividend of $0.36 per share at the moment, with a dividend yield of 2.16% compared to the Banks - Midwest industry's yield of 2.9% and the S&P 500's yield of 1.54%.
Looking at dividend growth, the company's current annualized dividend of $1.44 is up 2.9% from last year. In the past five-year period, 1st Source has increased its dividend 4 times on a year-over-year basis 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. 1st Source's current payout ratio is 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SRCE for this fiscal year. 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 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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 SRCE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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