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Why State Street Corporation (STT) is a Great Dividend Stock Right Now

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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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

State Street Corporation in Focus

Headquartered in Boston, State Street Corporation (STT - Free Report) is a Finance stock that has seen a price change of -2.66% so far this year. The company is paying out a dividend of $0.57 per share at the moment, with a dividend yield of 2.52% compared to the Banks - Major Regional industry's yield of 2.6% and the S&P 500's yield of 1.45%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.28 is up 4.6% from last year. Over the last 5 years, State Street Corporation has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.29%. 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. State Street Corporation's current payout ratio is 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for STT for this fiscal year. The Zacks Consensus Estimate for 2022 is $8.33 per share, which represents a year-over-year growth rate of 11.96%.

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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, STT 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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