All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
First Mid Bancshares in Focus
Headquartered in Mattoon, First Mid Bancshares (FMBH) is a Finance stock that has seen a price change of 5.81% so far this year. The bank holding company is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 2.46% compared to the Banks - Northeast industry's yield of 2.56% and the S&P 500's yield of 1.48%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 2.1% from last year. In the past five-year period, First Mid Bancshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.04%. 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. First Mid Bancshares's current payout ratio is 28%, meaning it paid out 28% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FMBH expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $3.53 per share, with earnings expected to increase 1.44% from the year ago period.
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. 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. 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 FMBH 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
