Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
City Holding in Focus
Based in Charleston, City Holding (CHCO - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 11.13%. The bank holding company for City National Bank of West Virginia is currently shelling out a dividend of $0.53 per share, with a dividend yield of 2.82%. This compares to the Banks - Southeast industry's yield of 1.82% and the S&P 500's yield of 1.92%.
Taking a look at the company's dividend growth, its 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%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. City Holding's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
CHCO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.33 per share, representing a year-over-year earnings growth rate of 3.29%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CHCO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).