Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Bank of Hawaii in Focus
Based in Honolulu, Bank of Hawaii (BOH - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 21.08%. The bank holding company is currently shelling out a dividend of $0.65 per share, with a dividend yield of 3.19%. This compares to the Banks - West industry's yield of 2.19% and the S&P 500's yield of 1.95%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.60 is up 11.1% from last year. In the past five-year period, Bank of Hawaii has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.47%. 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. Bank of Hawaii's current payout ratio is 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.
BOH is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.59 per share, with earnings expected to increase 6.88% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BOH 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).