Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Fifth Third Bancorp in Focus
Headquartered in Cincinnati, Fifth Third Bancorp (FITB - Free Report) is a Finance stock that has seen a price change of 24.31% so far this year. The regional bank is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 3.28% compared to the Banks - Major Regional industry's yield of 2.94% and the S&P 500's yield of 1.87%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 29.7% from last year. In the past five-year period, Fifth Third Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 13.08%. 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. Right now, Fifth Third's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FITB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.80 per share, which represents a year-over-year growth rate of 10.24%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).