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 Community in Focus

First Community (FCCO Quick QuoteFCCO - Free Report) is headquartered in Lexington, and is in the Finance sector. The stock has seen a price change of -2.51% since the start of the year. The holding company for First Community Bank is currently shelling out a dividend of $0.15 per share, with a dividend yield of 2.86%. This compares to the Banks - Southeast industry's yield of 2.55% and the S&P 500's yield of 1.58%.

Looking at dividend growth, the company's current annualized dividend of $0.60 is up 7.1% from last year. First Community has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 5.36%. 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 Community's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FCCO for this fiscal year. The Zacks Consensus Estimate for 2024 is $1.67 per share, representing a year-over-year earnings growth rate of 7.74%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FCCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).