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 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.
People's United in Focus
Headquartered in Bridgeport, People's United is a Finance stock that has seen a price change of 34.72% so far this year. The holding company for People's United Bank is currently shelling out a dividend of $0.18 per share, with a dividend yield of 4.19%. This compares to the Financial - Savings and Loan industry's yield of 2.35% and the S&P 500's yield of 1.35%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.73 is up 1.7% from last year. Over the last 5 years, People's United has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.38%. 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. People's United's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PBCT expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $1.29 per share, which represents a year-over-year growth rate of 1.57%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, 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).