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.
United Bankshares in Focus
Based in Charleston, United Bankshares (UBSI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 11.08%. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 3.52%. In comparison, the Banks - Southeast industry's yield is 1.24%, while the S&P 500's yield is 1.78%.
Looking at dividend growth, the company's current annualized dividend of $1.36 is up 2.3% from last year. In the past five-year period, United Bankshares has increased its dividend 3 times on a year-over-year basis for an average annual increase of 1.57%. 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. United Bankshares's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UBSI for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.49 per share, representing a year-over-year earnings growth rate of 31.05%.
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 UBSI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
We are reissuing this article to correct a mistake. The original article should no longer be relied upon.