Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Citigroup in Focus
Headquartered in New York, Citigroup (C - Free Report) is a Finance stock that has seen a price change of 22.19% so far this year. The U.S. bank is currently shelling out a dividend of $0.45 per share, with a dividend yield of 2.83%. This compares to the Banks - Major Regional industry's yield of 2.9% and the S&P 500's yield of 2.03%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 16.9% from last year. Over the last 5 years, Citigroup has increased its dividend 4 times on a year-over-year basis for an average annual increase of 145.49%. 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. Citigroup's current payout ratio is 26%. This means it paid out 26% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, C expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.60 per share, representing a year-over-year earnings growth rate of 14.29%.
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.
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, C presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).