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.
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.
Citigroup in Focus
Based in New York, Citigroup (C - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 25.22%. Currently paying a dividend of $0.45 per share, the company has a dividend yield of 2.76%. In comparison, the Banks - Major Regional industry's yield is 2.9%, while the S&P 500's yield is 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 16.9% from last year. Over the last 5 years, Citigroup has increased its dividend 4 times on a year-over-year basis for an average annual increase of 152.16%. 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. Citigroup's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, C expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.45 per share, which represents a year-over-year growth rate of 12.03%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that C is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).