All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
BancorpSouth in Focus
Based in Tupelo, BancorpSouth (BXS) is in the Finance sector, and so far this year, shares have seen a price change of 16.14%. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.24%. In comparison, the Banks - Southeast industry's yield is 1.51%, while the S&P 500's yield is 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.68 is up 9.7% from last year. In the past five-year period, BancorpSouth has increased its dividend 5 times on a year-over-year basis for an average annual increase of 26.28%. 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, BancorpSouth's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BXS for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.35 per share, with earnings expected to increase 5.38% from the year ago period.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BXS 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).