Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
City Holding in Focus
City Holding (CHCO - Free Report) is headquartered in Charleston, and is in the Finance sector. The stock has seen a price change of 13.3% since the start of the year. The bank holding company for City National Bank of West Virginia is currently shelling out a dividend of $0.53 per share, with a dividend yield of 2.77%. This compares to the Banks - Southeast industry's yield of 1.58% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $2.12 is up 11% from last year. In the past five-year period, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.65%. 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, City Holding's payout ratio is 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CHCO for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.33 per share, representing a year-over-year earnings growth rate of 3.29%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CHCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).