All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Webster Financial in Focus
Webster Financial (WBS - Free Report) is headquartered in Waterbury, and is in the Finance sector. The stock has seen a price change of 4.83% since the start of the year. Currently paying a dividend of $0.73 per share, the company has a dividend yield of 3.1%. In comparison, the Banks - Northeast industry's yield is 1.71%, while the S&P 500's yield is 1.94%.
In terms of dividend growth, the company's current annualized dividend of $1.60 is up 28% from last year. In the past five-year period, Webster Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.43%. 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. Webster Financial's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WBS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.17 per share, which represents a year-over-year growth rate of 11.50%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WBS 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).