Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
M&T Bank in Focus
Headquartered in Buffalo, M&T Bank (MTB - Free Report) is a Finance stock that has seen a price change of 18.83% so far this year. The bank holding company is currently shelling out a dividend of $1 per share, with a dividend yield of 2.35%. This compares to the Banks - Major Regional industry's yield of 2.84% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $4 is up 12.7% from last year. M&T Bank has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 8.14%. 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. Right now, M&T Bank's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MTB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $14.61 per share, which represents a year-over-year growth rate of 13.61%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MTB 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).