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U.S. Bancorp (USB) is a Top Dividend Stock Right Now: Should You Buy?
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
U.S. Bancorp in Focus
U.S. Bancorp (USB - Free Report) is headquartered in Minneapolis, and is in the Finance sector. The stock has seen a price change of 12.7% since the start of the year. The company is currently shelling out a dividend of $0.48 per share, with a dividend yield of 3.91%. This compares to the Banks - Major Regional industry's yield of 3.21% and the S&P 500's yield of 1.63%.
In terms of dividend growth, the company's current annualized dividend of $1.92 is up 2.1% from last year. U.S. Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.58%. 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, U.S. Bancorp's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $4.94 per share, representing a year-over-year earnings growth rate of 11.01%.
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.
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. 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, USB 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).