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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Bank of Hawaii in Focus
Based in Honolulu, Bank of Hawaii (BOH - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 20.99%. The bank holding company is currently shelling out a dividend of $0.62 per share, with a dividend yield of 3.04%. This compares to the Banks - West industry's yield of 1.8% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.48 is up 6% from last year. Bank of Hawaii has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 6.69%. 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. Bank of Hawaii's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BOH for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.59 per share, which represents a year-over-year growth rate of 6.88%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. That said, they can take comfort from the fact that BOH is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).