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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.
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.
Essa Bancorp in Focus
Headquartered in Stroudsburg, Essa Bancorp (ESSA) is a Finance stock that has seen a price change of 15.73% so far this year. Currently paying a dividend of $0.12 per share, the company has a dividend yield of 2.77%. In comparison, the Financial – Savings and Loan industry’s yield is 2.49%, while the S&P 500’s yield is 1.34%.
Looking at dividend growth, the company’s current annualized dividend of $0.48 is up 2.1% from last year. Over the last 5 years, Essa Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 7.39%. 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. Essa Bancorp’s current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.
ESSA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $1.73 per share, representing a year-over-year earnings growth rate of 4.85%.
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.
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. Income investors must be conscious 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 ESSA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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ESSA Bancorp, Inc. (ESSA): Free Stock Analysis Report
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