Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Westamerica in Focus
Based in San Rafael, Westamerica (WABC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -3.05%. The holding company for Westamerica Bank is paying out a dividend of $0.41 per share at the moment, with a dividend yield of 2.5% compared to the Banks - West industry's yield of 2% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $1.64 is up 0.6% from last year. Westamerica has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 1.54%. 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. Westamerica's current payout ratio is 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WABC for this fiscal year. The Zacks Consensus Estimate for 2020 is $3 per share, with earnings expected to increase 0.67% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, WABC 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).