All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.
Fifth Third Bancorp in Focus
Fifth Third Bancorp (FITB - Free Report) is headquartered in Cincinnati, and is in the Finance sector. The stock has seen a price change of 13.56% since the start of the year. The regional bank is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 3.29% compared to the Banks - Major Regional industry's yield of 2.97% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 18.9% from last year. Over the last 5 years, Fifth Third Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.88%. 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. Fifth Third's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
FITB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.78 per share, with earnings expected to increase 9.45% 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. 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 FITB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).