Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Community Bank System in Focus
Community Bank System (CBU) is headquartered in Dewitt, and is in the Finance sector. The stock has seen a price change of -2.81% since the start of the year. The bank holding company is currently shelling out a dividend of $0.41 per share, with a dividend yield of 2.38%. This compares to the Banks - Northeast industry's yield of 1.81% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.64 is up 3.8% from last year. Community Bank System has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.84%. 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. Right now, Community Bank's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CBU expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $3.30 per share, representing a year-over-year earnings growth rate of 0.30%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 CBU is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).