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.
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.
City Holding in Focus
Based in Charleston, City Holding (CHCO) is in the Finance sector, and so far this year, shares have seen a price change of 13.15%. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.53 per share at the moment, with a dividend yield of 2.77% compared to the Banks - Southeast industry's yield of 1.55% and the S&P 500's yield of 1.92%.
Looking at dividend growth, the company's current annualized dividend of $2.12 is up 11% from last year. Over the last 5 years, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.65%. 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. City Holding's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.
CHCO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.33 per share, with earnings expected to increase 3.29% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. 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, CHCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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