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 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
Headquartered in Waterbury, Webster Financial (WBS - Free Report) is a Finance stock that has seen a price change of 13.39% so far this year. Currently paying a dividend of $0.33 per share, the company has a dividend yield of 2.36%. In comparison, the Banks - Northeast industry's yield is 1.7%, while the S&P 500's yield is 1.91%.
Looking at dividend growth, the company's current annualized dividend of $1.32 is up 5.6% from last year. Over the last 5 years, Webster Financial has increased its dividend 5 times on a year-over-year basis 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. Right now, Webster Financial's payout ratio is 35%, which means it paid out 35% of its trailing 12-month EPS as dividend.
WBS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.16 per share, which represents a year-over-year growth rate of 11.23%.
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.
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 have to be mindful 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).