Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
U.S. Bancorp in Focus
U.S. Bancorp (USB) is headquartered in Minneapolis, and is in the Finance sector. The stock has seen a price change of 12.23% since the start of the year. The financial services holding company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 2.89% compared to the Banks - Major Regional industry's yield of 2.9% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $1.48 is up 10.4% from last year. In the past five-year period, U.S. Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.43%. 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, U.S. Bancorp's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.35 per share, which represents a year-over-year growth rate of 6.10%.
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.
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, USB 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).