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This is Why First Mid-Illinois Bancshares (FMBH) is a Great Dividend Stock

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does First Mid-Illinois Bancshares...

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This story originally appeared on Zacks

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

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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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

First Mid-Illinois Bancshares in Focus

Based in Mattoon, First Mid-Illinois Bancshares (FMBH) is in the Finance sector, and so far this year, shares have seen a price change of 21.51%. The bank holding company is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 2.15% compared to the Banks - Northeast industry's yield of 2% and the S&P 500's yield of 1.39%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.88 is up 8.6% from last year. In the past five-year period, First Mid-Illinois Bancshares has increased its dividend 4 times on a year-over-year basis for an average annual increase of 19.70%. 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. First Mid-Illinois's current payout ratio is 24%. This means it paid out 24% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, FMBH expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $3.57 per share, with earnings expected to increase 32.22% from the year ago period.

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. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FMBH 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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