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.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.
Webster Financial in Focus
Based in Waterbury, Webster Financial (WBS - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 7.04%. Currently paying a dividend of $0.33 per share, the company has a dividend yield of 2.5%. In comparison, the Banks - Northeast industry's yield is 1.76%, while the S&P 500's yield is 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1.32 is up 5.6% from last year. In the past five-year period, Webster Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.43%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Webster Financial's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
WBS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.17 per share, with earnings expected to increase 11.50% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, WBS 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).