Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 -12.22% so far this year. The bank holding company is currently shelling out a dividend of $0.24 per share, with a dividend yield of 2.97%. This compares to the Banks - Northeast industry's yield of 3.2% and the S&P 500's yield of 1.69%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 2.1% from last year. Over the last 5 years, First Mid Bancshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.91%. Future dividend growth will depend on earnings growth as well as 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%. This means it paid out 28% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FMBH for this fiscal year. The Zacks Consensus Estimate for 2025 is $3.61 per share, which represents a year-over-year growth rate of 3.74%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FMBH 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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First Mid Bancshares, Inc. (FMBH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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