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Why Essa Bancorp (ESSA) is a Top Dividend Stock for Your Portfolio

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Essa Bancorp (ESSA) have what it takes? Let's...

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

Essa Bancorp in Focus

Essa Bancorp (ESSA) is headquartered in Stroudsburg, and is in the Finance sector. The stock has seen a price change of -0.06% since the start of the year. The bank is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 2.77% compared to the Financial - Savings and Loan industry's yield of 2.43% and the S&P 500's yield of 1.3%.

In terms of dividend growth, the company's current annualized dividend of $0.48 is up 2.1% from last year. Essa Bancorp has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 7.68%. 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, Essa Bancorp's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ESSA for this fiscal year. The Zacks Consensus Estimate for 2022 is $1.73 per share, with earnings expected to increase 4.85% 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. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, ESSA 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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