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.
KeyCorp in Focus
Headquartered in Cleveland, KeyCorp (KEY - Free Report) is a Finance stock that has seen a price change of 14.61% so far this year. The bank holding company is currently shelling out a dividend of $0.34 per share, with a dividend yield of 4.01%. This compares to the Banks - Major Regional industry's yield of 3% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $0.68 is up 20.4% from last year. KeyCorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 22.17%. 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. Right now, KeyCorp's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KEY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.80 per share, with earnings expected to increase 4.05% 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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, KEY 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).