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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 10.54% since the start of the year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.79%. In comparison, the Banks - Southeast industry's yield is 1.82%, while the S&P 500's yield is 1.87%.
In terms of dividend growth, the company's current annualized dividend of $0.56 is up 21.7% from last year. In the past five-year period, Regions Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 25.80%. 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. Regions Financial's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
RF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.56 per share, with earnings expected to increase 14.71% 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. However, not all companies offer 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, 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).