Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Regions Financial in Focus
Headquartered in Birmingham, Regions Financial (RF - Free Report) is a Finance stock that has seen a price change of 15.62% so far this year. The holding company for Regions Bank is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 3.62% compared to the Banks - Southeast industry's yield of 1.58% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.56 is up 21.7% from last year. In the past five-year period, Regions Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 25.33%. 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, Regions Financial's payout ratio is 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RF for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.58 per share, representing a year-over-year earnings growth rate of 16.18%.
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.
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. 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, RF 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).