Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 Business Financial Services in Focus
Based in Madison, First Business Financial Services (FBIZ) is in the Finance sector, and so far this year, shares have seen a price change of 5.01%. The bank holding company for First Business Bank and First Business Bank-Milwaukee is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 2.39% compared to the Banks - Midwest industry's yield of 3.08% and the S&P 500's yield of 1.59%.
In terms of dividend growth, the company's current annualized dividend of $1.16 is up 16% from last year. Over the last 5 years, First Business Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.70%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, First Business Financial Services's payout ratio is 22%, which means it paid out 22% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FBIZ expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $5.44 per share, representing a year-over-year earnings growth rate of 10.57%.
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, FBIZ presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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First Business Financial Services, Inc. (FBIZ): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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