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 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.
South State in Focus
Based in Columbia, South State (SSB) is in the Finance sector, and so far this year, shares have seen a price change of -9.52%. Currently paying a dividend of $0.47 per share, the company has a dividend yield of 2.4%. In comparison, the Banks - Southeast industry's yield is 1.84%, while the S&P 500's yield is 1.78%.
Looking at dividend growth, the company's current annualized dividend of $1.88 is up 12.6% from last year. Over the last 5 years, South State has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.79%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, South State's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SSB expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $5.91 per share, with earnings expected to increase 4.97% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 SSB is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).