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 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.

Horizon Bancorp in Focus

Based in Michigan City, Horizon Bancorp (HBNC) is in the Finance sector, and so far this year, shares have seen a price change of 5.61%. The bank holding company is currently shelling out a dividend of $0.13 per share, with a dividend yield of 3.1%. This compares to the Banks - Northeast industry's yield of 2% and the S&P 500's yield of 1.33%.

Looking at dividend growth, the company's current annualized dividend of $0.52 is up 8.3% from last year. Horizon Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 15.37%. 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. Horizon Bancorp's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HBNC for this fiscal year. The Zacks Consensus Estimate for 2021 is $1.77 per share, with earnings expected to increase 15.69% from the year ago period.

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. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, HBNC 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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