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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
BB&T in Focus
BB&T (BBT - Free Report) is headquartered in Winston-Salem, and is in the Finance sector. The stock has seen a price change of 17.66% since the start of the year. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.18%. In comparison, the Banks - Major Regional industry's yield is 2.8%, while the S&P 500's yield is 1.87%.
Looking at dividend growth, the company's current annualized dividend of $1.62 is up 3.8% from last year. In the past five-year period, BB&T has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.32%. 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. BB&T's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BBT for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.32 per share, which represents a year-over-year growth rate of 10.49%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, BBT 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).