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Why Mitsubishi UFJ (MUFG) 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. However, 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 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.

Mitsubishi UFJ in Focus

Mitsubishi UFJ (MUFG - Free Report) is headquartered in Tokyo, and is in the Finance sector. The stock has seen a price change of 31.63% since the start of the year. The bank is currently shelling out a dividend of $0.11 per share, with a dividend yield of 2.55%. This compares to the Banks - Foreign industry's yield of 4.31% and the S&P 500's yield of 1.69%.

Looking at dividend growth, the company's current annualized dividend of $0.22 is up 20.9% from last year. In the past five-year period, Mitsubishi UFJ has increased its dividend 2 times on a year-over-year basis for an average annual increase of 0.52%. 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, MUFG's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, MUFG expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $0.78 per share, representing a year-over-year earnings growth rate of 129.41%.

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. However, not all companies offer 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. That said, they can take comfort from the fact that MUFG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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