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.
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.
U.S. Bancorp in Focus
Based in Minneapolis, U.S. Bancorp (USB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 10.9%. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.92%. In comparison, the Banks - Major Regional industry's yield is 2.83%, while the S&P 500's yield is 1.97%.
In terms of dividend growth, the company's current annualized dividend of $1.48 is up 10.4% from last year. In the past five-year period, U.S. Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.43%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, U.S. Bancorp's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for USB for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.35 per share, with earnings expected to increase 6.04% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, USB 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).