Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
PNC Financial Services in Focus
Based in Pittsburgh, PNC Financial Services (PNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 19.48%. The regional bank operator is paying out a dividend of $0.95 per share at the moment, with a dividend yield of 2.72% compared to the Banks - Major Regional industry's yield of 2.77% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.80 is up 11.8% from last year. Over the last 5 years, PNC Financial Services has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.07%. 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. PNC Financial Services's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PNC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.32 per share, which represents a year-over-year growth rate of 5.70%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PNC 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).