All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Webster Financial in Focus
Webster Financial (WBS - Free Report) is headquartered in Waterbury, and is in the Finance sector. The stock has seen a price change of -6.98% since the start of the year. The holding company for Webster Bank is currently shelling out a dividend of $0.4 per share, with a dividend yield of 3.49%. This compares to the Banks - Northeast industry's yield of 1.91% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.60 is up 28% from last year. In the past five-year period, Webster Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.43%. 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, Webster Financial's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
WBS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.16 per share, with earnings expected to increase 11.23% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, WBS 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).