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.
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.
People's United in Focus
Headquartered in Bridgeport, People's United (PBCT - Free Report) is a Finance stock that has seen a price change of -4.06% so far this year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 3.9%. In comparison, the Financial - Savings and Loan industry's yield is 1.93%, while the S&P 500's yield is 1.77%.
In terms of dividend growth, the company's current annualized dividend of $0.70 is up 1.7% from last year. Over the last 5 years, People's United has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.51%. 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. People's United's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
PBCT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.29 per share, with earnings expected to increase 32.99% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. That said, they can take comfort from the fact that PBCT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).