Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
BancorpSouth in Focus
Headquartered in Tupelo, BancorpSouth (BXS - Free Report) is a Finance stock that has seen a price change of 22.07% so far this year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.13%. In comparison, the Banks - Southeast industry's yield is 1.58%, while the S&P 500's yield is 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 9.7% from last year. In the past five-year period, BancorpSouth has increased its dividend 5 times on a year-over-year basis for an average annual increase of 26.28%. 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, BancorpSouth's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
BXS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.35 per share, representing a year-over-year earnings growth rate of 5.46%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BXS 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).