Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Orrstown Financial Services in Focus

Orrstown Financial Services (ORRF) is headquartered in Harrisburg, and is in the Finance sector. The stock has seen a price change of -0.74% since the start of the year. The holding company for Orrstown Bank is currently shelling out a dividend of $0.23 per share, with a dividend yield of 2.53%. This compares to the Banks - Northeast industry's yield of 2.56% and the S&P 500's yield of 1.5%.

Looking at dividend growth, the company's current annualized dividend of $0.92 is up 7% from last year. Over the last 5 years, Orrstown Financial Services has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.61%. 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. Right now, Orrstown's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.

ORRF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $4.37 per share, representing a year-over-year earnings growth rate of 16.22%.

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.

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ORRF 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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