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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
The PNC Financial Services Group, Inc in Focus
Based in Pittsburgh, The PNC Financial Services Group, Inc (PNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -3.48%. The company is paying out a dividend of $1.15 per share at the moment, with a dividend yield of 2.99% compared to the Banks - Major Regional industry's yield of 2.65% and the S&P 500's yield of 1.75%.
In terms of dividend growth, the company's current annualized dividend of $4.60 is up 9.5% from last year. The PNC Financial Services Group, Inc has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 21.68%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. The PNC Financial Services Group, Inc's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.
PNC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $11.85 per share, with earnings expected to increase 4.04% 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. It's important to keep in mind that not all companies provide 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. That said, they can take comfort from the fact that PNC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).