Why OFG Bancorp (OFG) is a Great Dividend Stock Right Now

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

OFG Bancorp in Focus

Based in San Juan, OFG Bancorp (OFG) is in the Finance sector, and so far this year, shares have seen a price change of 2.64%. The financial holding company is currently shelling out a dividend of $0.15 per share, with a dividend yield of 2.2%. This compares to the Banks - Northeast industry's yield of 2.33% and the S&P 500's yield of 1.58%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.60 is up 50% from last year. OFG Bancorp has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 15.49%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. OFG's current payout ratio is 20%, meaning it paid out 20% of its trailing 12-month EPS as dividend.

OFG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $3.10 per share, representing a year-over-year earnings growth rate of 10.32%.

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. 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 OFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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