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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
People's United in Focus
People's United is headquartered in Bridgeport, and is in the Finance sector. The stock has seen a price change of 44.39% since the start of the year. Currently paying a dividend of $0.18 per share, the company has a dividend yield of 3.91%. In comparison, the Financial - Savings and Loan industry's yield is 2.38%, while the S&P 500's yield is 1.27%.
Looking at dividend growth, the company's current annualized dividend of $0.73 is up 1.7% from last year. In the past five-year period, People's United has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.38%. 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. Right now, People's United's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.
PBCT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $1.30 per share, representing a year-over-year earnings growth rate of 2.36%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. With that in mind, PBCT 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).