Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
M&T Bank in Focus
Headquartered in Buffalo, M&T Bank (MTB - Free Report) is a Finance stock that has seen a price change of 33.3% so far this year. The bank holding company is currently shelling out a dividend of $2.24 per share, with a dividend yield of 29%. This compares to the Banks - Major Regional industry's yield of 37.65% and the S&P 500's yield of 1%.
In terms of dividend growth, the company's current annualized dividend of $2.17 is up 2.1% from last year. In the past five-year period, M&T Bank has increased its dividend 6.70 times on a year-over-year basis for an average annual increase of 2%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. M&T Bank's current payout ratio is 4.57%, meaning it paid out 4.57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MTB for this fiscal year. The Zacks Consensus Estimate for 2018 is $4 per share, representing a year-over-year earnings growth rate of 14.01%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. That said, they can take comfort from the fact that MTB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).