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.
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.
Citigroup in Focus
Based in New York, Citigroup (C) is in the Finance sector, and so far this year, shares have seen a price change of -1.38%. Currently paying a dividend of $0.51 per share, the company has a dividend yield of 2.59%. In comparison, the Banks - Major Regional industry's yield is 2.77%, while the S&P 500's yield is 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.04 is up 6.3% from last year. In the past five-year period, Citigroup has increased its dividend 5 times on a year-over-year basis for an average annual increase of 100.16%. 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, Citigroup's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for C for this fiscal year. The Zacks Consensus Estimate for 2020 is $8.66 per share, which represents a year-over-year growth rate of 14.25%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, C presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).