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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
BB&T in Focus
Headquartered in Winston-Salem, BB&T (BBT - Free Report) is a Finance stock that has seen a price change of 13.69% so far this year. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.29%. In comparison, the Banks - Major Regional industry's yield is 3%, while the S&P 500's yield is 1.97%.
Looking at dividend growth, the company's current annualized dividend of $1.62 is up 3.8% from last year. Over the last 5 years, BB&T has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.32%. 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, BB&T's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
BBT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.30 per share, which represents a year-over-year growth rate of 9.97%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, BBT 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).