Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.

Enterprise Financial Services in Focus

Headquartered in Clayton, Enterprise Financial Services (EFSC) is a Finance stock that has seen a price change of -2.82% so far this year. The financial holding company is currently shelling out a dividend of $0.29 per share, with a dividend yield of 2.12%. This compares to the Banks - Midwest industry's yield of 3.14% and the S&P 500's yield of 1.55%.

Looking at dividend growth, the company's current annualized dividend of $1.16 is up 9.4% from last year. In the past five-year period, Enterprise Financial Services has increased its dividend 3 times on a year-over-year basis for an average annual increase of 11.56%. 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. Enterprise Financial Services's current payout ratio is 23%, meaning it paid out 23% of its trailing 12-month EPS as dividend.

EFSC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.20 per share, which represents a year-over-year growth rate of 6.56%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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, EFSC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).

Story Continues

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This article originally published on Zacks Investment Research (zacks.com).

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