Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
M&T Bank in Focus
M&T Bank (MTB - Free Report) is headquartered in Buffalo, and is in the Finance sector. The stock has seen a price change of 13.31% since the start of the year. Currently paying a dividend of $1 per share, the company has a dividend yield of 2.47%. In comparison, the Banks - Major Regional industry's yield is 2.9%, while the S&P 500's yield is 2.03%.
Looking at dividend growth, the company's current annualized dividend of $4 is up 12.7% from last year. M&T Bank has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 6.95%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. M&T Bank's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MTB for this fiscal year. The Zacks Consensus Estimate for 2019 is $14.63 per share, with earnings expected to increase 13.76% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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, MTB 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).