Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
People's United in Focus
Headquartered in Bridgeport, People's United (PBCT - Free Report) is a Finance stock that has seen a price change of 19.89% so far this year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 4.05%. In comparison, the Financial - Savings and Loan industry's yield is 2.31%, while the S&P 500's yield is 1.96%.
Looking at dividend growth, the company's current annualized dividend of $0.70 is up 0.4% from last year. People's United has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 1.50%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, People's United's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PBCT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.40 per share, with earnings expected to increase 6.87% 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. 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. 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, PBCT 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).