Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
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 8.36%. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.71% compared to the Banks - Southeast industry's yield of 2.16% and the S&P 500's yield of 1.85%.
In terms of dividend growth, the company's current annualized dividend of $2.40 is up 3.4% 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 6.88%. 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 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CHCO expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $6.42 per share, which represents a year-over-year growth rate of 13.43%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CHCO 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).
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