All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
City Holding in Focus
City Holding (CHCO - Free Report) is headquartered in Charleston, and is in the Finance sector. The stock has seen a price change of 9.63% since the start of the year. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.53 per share at the moment, with a dividend yield of 2.86% compared to the Banks - Southeast industry's yield of 1.82% and the S&P 500's yield of 1.87%.
In terms of dividend growth, the company's current annualized dividend of $2.12 is up 11% from last year. Over the last 5 years, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.52%. 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. City Holding's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CHCO for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.29 per share, representing a year-over-year earnings growth rate of 2.52%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CHCO 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).