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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 -3.12% since the start of the year. The holding company for Webster Bank is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 3.35% compared to the Banks - Northeast industry's yield of 1.84% and the S&P 500's yield of 1.99%.
Looking at dividend growth, the company's current annualized dividend of $1.60 is up 28% from last year. Over the last 5 years, Webster Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.43%. 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. Webster Financial's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WBS for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.17 per share, representing a year-over-year earnings growth rate of 11.50%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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, 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).