All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.

First United Corporation in Focus

First United Corporation (FUNC Quick QuoteFUNC - Free Report) is headquartered in Oakland, and is in the Finance sector. The stock has seen a price change of 16.67% since the start of the year. The company is paying out a dividend of $0.2 per share at the moment, with a dividend yield of 2.92% compared to the Banks - Northeast industry's yield of 2.91% and the S&P 500's yield of 1.61%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.80 is up 2.6% from last year. First United Corporation has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 13.88%. 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. First United's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FUNC for this fiscal year. The Zacks Consensus Estimate for 2024 is $3 per share, which represents a year-over-year growth rate of 7.14%.

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. 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. 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 FUNC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).