All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Citigroup in Focus
Headquartered in New York, Citigroup (C - Free Report) is a Finance stock that has seen a price change of -50.38% so far this year. The U.S. bank is paying out a dividend of $0.51 per share at the moment, with a dividend yield of 5.15% compared to the Banks - Major Regional industry's yield of 4% and the S&P 500's yield of 2.67%.
Looking at dividend growth, the company's current annualized dividend of $2.04 is up 6.3% from last year. Over the last 5 years, Citigroup has increased its dividend 5 times on a year-over-year basis for an average annual increase of 100.16%. 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. Citigroup's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, C expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $8.48 per share, which represents a year-over-year growth rate of 11.87%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, C 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).