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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
SunTrust in Focus
Based in Atlanta, SunTrust (STI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 22.64%. The holding company for SunTrust Bank is paying out a dividend of $0.5 per share at the moment, with a dividend yield of 3.23% compared to the Banks - Major Regional industry's yield of 3.08% and the S&P 500's yield of 1.94%.
Taking a look at the company's dividend growth, its current annualized dividend of $2 is up 11.1% from last year. Over the last 5 years, SunTrust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 23.50%. 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. Right now, SunTrust's payout ratio is 35%, which means it paid out 35% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, STI expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.81 per share, which represents a year-over-year growth rate of 1.22%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, STI 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).