Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
U.S. Bancorp in Focus
Headquartered in Minneapolis, U.S. Bancorp (USB - Free Report) is a Finance stock that has seen a price change of 5.25% so far this year. The financial services holding company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 3.08% compared to the Banks - Major Regional industry's yield of 3.13% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.48 is up 10.4% from last year. In the past five-year period, U.S. Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.43%. 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. Right now, U.S. Bancorp's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.34 per share, with earnings expected to increase 5.85% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, USB 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).