All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
BancorpSouth in Focus
Headquartered in Tupelo, BancorpSouth (BXS - Free Report) is a Finance stock that has seen a price change of 9.56% so far this year. The bank is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.37%. This compares to the Banks - Southeast industry's yield of 1.67% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 9.7% from last year. BancorpSouth has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 26.28%. 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. BancorpSouth's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
BXS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.35 per share, which represents a year-over-year growth rate of 5.38%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 must be conscious 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 BXS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).