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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Cathay General in Focus
Headquartered in Los Angeles, Cathay General (CATY - Free Report) is a Finance stock that has seen a price change of 2.09% so far this year. The holding company for Cathay Bank is paying out a dividend of $0.31 per share at the moment, with a dividend yield of 3.62% compared to the Banks - West industry's yield of 2.09% and the S&P 500's yield of 1.96%.
In terms of dividend growth, the company's current annualized dividend of $1.24 is up 20.4% from last year. In the past five-year period, Cathay General has increased its dividend 5 times on a year-over-year basis for an average annual increase of 28.45%. 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. Cathay's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
CATY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.50 per share, which represents a year-over-year growth rate of 4.79%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. With that in mind, CATY 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).