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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Umpqua Holdings in Focus
Umpqua Holdings (UMPQ - Free Report) is headquartered in Portland, and is in the Finance sector. The stock has seen a price change of 10.63% since the start of the year. The regional bank is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 4.78% compared to the Banks - West industry's yield of 1.8% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $0.84 is up 2.4% from last year. In the past five-year period, Umpqua Holdings has increased its dividend 3 times on a year-over-year basis for an average annual increase of 7.43%. 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. Umpqua's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UMPQ for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.65 per share, representing a year-over-year earnings growth rate of 13.01%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, UMPQ 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).