Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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.
Regions Financial in Focus
Based in Birmingham, Regions Financial (RF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 13.68%. The holding company for Regions Bank is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 3.68% compared to the Banks - Southeast industry's yield of 1.73% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.56 is up 21.7% from last year. In the past five-year period, Regions Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 24.13%. 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. Regions Financial's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.
RF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.59 per share, which represents a year-over-year growth rate of 16.91%.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, RF 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).