All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Comerica in Focus
Based in Dallas, Comerica (CMA - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 120.2%. The regional bank is currently shelling out a dividend of $2.58 per share, with a dividend yield of 23%. This compares to the Banks - Major Regional industry's yield of 49.16% and the S&P 500's yield of 0.34%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.64 is up 13% from last year. In the past five-year period, Comerica has increased its dividend 30.80 times on a year-over-year basis for an average annual increase of 5%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Comerica's payout ratio is 7.14%, which means it paid out 7.14% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CMA for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.40 per share, with earnings expected to increase 7.98% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. 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 CMA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).