All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 22.18% 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 3.06% compared to the Banks - Major Regional industry's yield of 2.8% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its 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%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Fifth Third's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FITB for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.76 per share, representing a year-over-year earnings growth rate of 8.66%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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, FITB 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).