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

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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.

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 -11.56% so far this year. The company is paying out a dividend of $0.57 per share at the moment, with a dividend yield of 2.77% compared to the Banks - Major Regional industry's yield of 2.94% and the S&P 500's yield of 1.46%.

In terms of dividend growth, the company's current annualized dividend of $2.28 is up 4.6% from last year. In the past five-year period, State Street Corporation has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.82%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. State Street Corporation's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, STT expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $8.23 per share, with earnings expected to increase 10.62% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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