Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Webster Financial in Focus
Based in Waterbury, Webster Financial (WBS - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 14.12%. The holding company for Webster Bank is currently shelling out a dividend of $0.33 per share, with a dividend yield of 2.35%. This compares to the Banks - Northeast industry's yield of 1.71% and the S&P 500's yield of 2%.
Looking at dividend growth, the company's current annualized dividend of $1.32 is up 5.6% from last year. Webster Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.76%. 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. Webster Financial's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WBS for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.12 per share, which represents a year-over-year growth rate of 10.16%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, WBS 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).