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 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.
Fifth Third Bancorp in Focus
Headquartered in Cincinnati, Fifth Third Bancorp (FITB - Free Report) is a Finance stock that has seen a price change of 14.28% so far this year. The regional bank is currently shelling out a dividend of $0.22 per share, with a dividend yield of 3.27%. This compares to the Banks - Major Regional industry's yield of 2.9% and the S&P 500's yield of 2.03%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 18.9% from last year. Over the last 5 years, Fifth Third Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 10.88%. 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. Fifth Third's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.
FITB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.77 per share, representing a year-over-year earnings 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. But, not every company offers 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 must be conscious 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).