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.
Webster Financial in Focus
Headquartered in Waterbury, Webster Financial (WBS - Free Report) is a Finance stock that has seen a price change of 16.29% so far this year. The holding company for Webster Bank is currently shelling out a dividend of $0.33 per share, with a dividend yield of 2.02%. This compares to the Banks - Northeast industry's yield of 1.55% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $1.32 is up 28.2% from last year. Webster Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.85%. 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, Webster Financial's payout ratio is 43%, which means it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WBS expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.61 per share, representing a year-over-year earnings growth rate of 39.38%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 WBS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).