Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
Headquartered in Glens Falls, Arrow Financial (AROW) is a Finance stock that has seen a price change of 33.98% so far this year. The bank holding company is currently shelling out a dividend of $0.30 per share, with a dividend yield of 2.85%. This compares to the Banks - Northeast industry's yield of 2.13% and the S&P 500's yield of 1.4%.
Looking at dividend growth, the company's current annualized dividend of $1.20 is up 5.3% from last year. Over the last 5 years, Arrow Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.12%. 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. Arrow Financial's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.
AROW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $3.80 per share, which represents a year-over-year growth rate of 40.74%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AROW 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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Arrow Financial Corporation (AROW): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).