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Why Cullen/Frost Bankers (CFR) 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.

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.

Cullen/Frost Bankers in Focus

Cullen/Frost Bankers (CFR - Free Report) is headquartered in San Antonio, and is in the Finance sector. The stock has seen a price change of 4.11% since the start of the year. The financial holding company is currently shelling out a dividend of $0.87 per share, with a dividend yield of 2.65%. This compares to the Banks - Southwest industry's yield of 1.38% and the S&P 500's yield of 1.69%.

Looking at dividend growth, the company's current annualized dividend of $3.48 is up 18.4% from last year. Over the last 5 years, Cullen/Frost Bankers has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.37%. 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. Right now, Cullen/Frost's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, CFR expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $8.05 per share, which represents a year-over-year growth rate of 19.08%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. That said, they can take comfort from the fact that CFR is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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