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 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.
U.S. Bancorp in Focus
Based in Minneapolis, U.S. Bancorp (USB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 0.69%. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.74%. In comparison, the Banks - Major Regional industry's yield is 2.58%, while the S&P 500's yield is 1.83%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.48 is up 27.6% from last year. In the past five-year period, U.S. Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.50%. 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. U.S. Bancorp's current payout ratio is 32%. This means it paid out 32% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.07 per share, which represents a year-over-year growth rate of 19.01%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, USB 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).