Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Washington Federal in Focus
Based in Seattle, Washington Federal (WAFD - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 23.02%. The holding company for Washington Federal Savings Bank is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.43%. This compares to the Banks - Northeast industry's yield of 1.91% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $0.80 is up 19.4% from last year. Washington Federal has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.73%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Washington Federal's payout ratio is 32%, which means it paid out 32% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WAFD for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.56 per share, with earnings expected to increase 6.67% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. That said, they can take comfort from the fact that WAFD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).