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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Home BancShares in Focus
Home BancShares (HOMB) is headquartered in Conway, and is in the Finance sector. The stock has seen a price change of -10.85% since the start of the year. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 3.09%. In comparison, the Banks - Southeast industry's yield is 2.52%, while the S&P 500's yield is 1.68%.
Looking at dividend growth, the company's current annualized dividend of $0.78 is up 4% from last year. Home BancShares has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 9.55%. 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. Home BancShares's current payout ratio is 39%. This means it paid out 39% of its trailing 12-month EPS as dividend.
HOMB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $2.19 per share, representing a year-over-year earnings growth rate of 8.96%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, HOMB is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Home BancShares, Inc. (HOMB): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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