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 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.
Northrim BanCorp in Focus
Based in Anchorage, Northrim BanCorp (NRIM) is in the Finance sector, and so far this year, shares have seen a price change of 30.28%. The holding company for Northrim Bank is currently shelling out a dividend of $0.24 per share, with a dividend yield of 2.18%. This compares to the Banks – West industry’s yield of 1.4% and the S&P 500’s yield of 1.78%.
In terms of dividend growth, the company’s current annualized dividend of $0.96 is up 11.6% from last year. Northrim BanCorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.48%. 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. Right now, Northrim’s payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
NRIM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.85 per share, which represents a year-over-year growth rate of 39.71%.
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. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 NRIM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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