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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Community Trust Bancorp in Focus
Headquartered in Pikeville, Community Trust Bancorp (CTBI - Free Report) is a Finance stock that has seen a price change of 9.39% so far this year. The bank holding company for Community Trust Bank is currently shelling out a dividend of $0.36 per share, with a dividend yield of 3.32%. This compares to the Banks - Southeast industry's yield of 1.69% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.44 is up 4.3% from last year. Over the last 5 years, Community Trust Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.14%. 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. Community Trust Bancorp's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
CTBI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.55 per share, with earnings expected to increase 5.97% from the year ago period.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CTBI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).