Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
Based in South Bend, 1st Source (SRCE) is in the Finance sector, and so far this year, shares have seen a price change of 5.88%. Currently paying a dividend of $0.36 per share, the company has a dividend yield of 2.33%. In comparison, the Banks - Midwest industry's yield is 2.82%, while the S&P 500's yield is 1.48%.
Looking at dividend growth, the company's current annualized dividend of $1.44 is up 2.9% from last year. Over the last 5 years, 1st Source has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.14%. 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, 1st Source's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SRCE for this fiscal year. The Zacks Consensus Estimate for 2025 is $5.82 per share, which represents a year-over-year growth rate of 6.01%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that SRCE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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