Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
BB&T in Focus
Headquartered in Winston-Salem, BB&T (BBT - Free Report) is a Finance stock that has seen a price change of -2.92% so far this year. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.36%. In comparison, the Banks - Major Regional industry's yield is 2.54%, while the S&P 500's yield is 1.79%.
Looking at dividend growth, the company's current annualized dividend of $1.62 is up 28.6% from last year. Over the last 5 years, BB&T has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.14%. 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. BB&T's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BBT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.98 per share, representing a year-over-year earnings growth rate of 42.65%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. Income investors have to be mindful 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 BBT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).