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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
People's United in Focus
People's United (PBCT - Free Report) is headquartered in Bridgeport, and is in the Finance sector. The stock has seen a price change of 10.88% since the start of the year. The holding company for People's United Bank is paying out a dividend of $0.17 per share at the moment, with a dividend yield of 4.38% compared to the Financial - Savings and Loan industry's yield of 2.21% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $0.70 is up 0.4% 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 1.50%. 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. People's United's current payout ratio is 56%. This means it paid out 56% of its trailing 12-month EPS as dividend.
PBCT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.42 per share, which represents a year-over-year growth rate of 8.40%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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, PBCT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).