All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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.
United Bankshares in Focus
United Bankshares (UBSI - Free Report) is headquartered in Charleston, and is in the Finance sector. The stock has seen a price change of 2.3% since the start of the year. The holding company for United Bank is currently shelling out a dividend of $3.52 per share, with a dividend yield of 59%. This compares to the Banks - Southeast industry's yield of 31.05% and the S&P 500's yield of 0.34%.
Looking at dividend growth, the company's current annualized dividend of $3.65 is up 1.6% from last year. United Bankshares has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 3%. 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, United Bankshares's payout ratio is 11.08%, which means it paid out 11.08% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, UBSI expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.36 per share, which represents a year-over-year growth rate of 2.61%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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, UBSI presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).