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.
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.
Regions Financial in Focus
Regions Financial (RF - Free Report) is headquartered in Birmingham, and is in the Finance sector. The stock has seen a price change of 9.04% since the start of the year. The holding company for Regions Bank is currently shelling out a dividend of $0.14 per share, with a dividend yield of 3.84%. This compares to the Banks - Southeast industry's yield of 1.73% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $0.56 is up 21.7% from last year. Regions Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 24.13%. 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. Regions Financial's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RF for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.57 per share, representing a year-over-year earnings growth rate of 15.44%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, RF 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).