All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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.
BB&T in Focus
BB&T (BBT - Free Report) is headquartered in Winston-Salem, and is in the Finance sector. The stock has seen a price change of 14.45% since the start of the year. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.27%. In comparison, the Banks - Major Regional industry's yield is 2.9%, while the S&P 500's yield is 1.96%.
In terms of dividend growth, the company's current annualized dividend of $1.62 is up 3.8% from last year. Over the last 5 years, BB&T has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.92%. 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. BB&T's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BBT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.29 per share, which represents a year-over-year growth rate of 9.72%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BBT 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).