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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
M&T Bank in Focus
Headquartered in Buffalo, M&T Bank (MTB - Free Report) is a Finance stock that has seen a price change of 17.12% so far this year. Currently paying a dividend of $1 per share, the company has a dividend yield of 2.39%. In comparison, the Banks - Major Regional industry's yield is 2.83%, while the S&P 500's yield is 1.97%.
Looking at dividend growth, the company's current annualized dividend of $4 is up 12.7% from last year. M&T Bank has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 5.55%. 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. M&T Bank's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MTB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $14.62 per share, with earnings expected to increase 13.67% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MTB presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).