All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
South State in Focus
Based in Columbia, South State (SSB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -20.29%. The bank holding company is paying out a dividend of $0.47 per share at the moment, with a dividend yield of 2.72% compared to the Banks - Southeast industry's yield of 2.09% and the S&P 500's yield of 2.04%.
Taking a look at the company's dividend growth, its 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%. 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. 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 $5.75 per share, representing a year-over-year earnings growth rate of 2.13%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful 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).