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.
Fifth Third Bancorp in Focus
Based in Cincinnati, Fifth Third Bancorp (FITB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 14.75%. The regional bank is currently shelling out a dividend of $0.22 per share, with a dividend yield of 3.26%. This compares to the Banks - Major Regional industry's yield of 2.86% and the S&P 500's yield of 1.96%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 18.9% from last year. In the past five-year period, Fifth Third Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.88%. 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. Fifth Third's current payout ratio is 34%. This 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 $2.77 per share, which represents a year-over-year growth rate of 9.06%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).