Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Fifth Third Bancorp in Focus
Based in Cincinnati, Fifth Third Bancorp (FITB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 14.07%. Currently paying a dividend of $0.24 per share, the company has a dividend yield of 3.58%. In comparison, the Banks - Major Regional industry's yield is 3.08%, while the S&P 500's yield is 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.96 is up 29.7% from last year. Over the last 5 years, Fifth Third Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 13.08%. 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. Fifth Third's current payout ratio is 36%. This means it paid out 36% 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 $2.82 per share, with earnings expected to increase 11.02% from the year ago period.
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.
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, 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).