All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
BancorpSouth in Focus
BancorpSouth (BXS - Free Report) is headquartered in Tupelo, and is in the Finance sector. The stock has seen a price change of 15.07% since the start of the year. The bank is currently shelling out a dividend of $0.17 per share, with a dividend yield of 2.26%. This compares to the Banks - Southeast industry's yield of 1.73% and the S&P 500's yield of 1.89%.
In terms of dividend growth, the company's current annualized dividend of $0.68 is up 9.7% from last year. Over the last 5 years, BancorpSouth has increased its dividend 5 times on a year-over-year basis for an average annual increase of 24.02%. 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. BancorpSouth's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BXS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.39 per share, representing a year-over-year earnings growth rate of 7.17%.
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. Income investors must be conscious 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 BXS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).