All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.
Fifth Third Bancorp in Focus
Fifth Third Bancorp (FITB - Free Report) is headquartered in Cincinnati, and is in the Finance sector. The stock has seen a price change of 20.48% since the start of the year. Currently paying a dividend of $0.24 per share, the company has a dividend yield of 3.39%. In comparison, the Banks - Major Regional industry's yield is 2.84%, while the S&P 500's yield is 1.88%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 29.7% from last year. Over the last 5 years, Fifth Third Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 13.08%. 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. Fifth Third's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.
FITB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.81 per share, with earnings expected to increase 10.63% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FITB 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).