Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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.
Citigroup in Focus
Based in New York, Citigroup (C) is in the Finance sector, and so far this year, shares have seen a price change of 2.53%. Currently paying a dividend of $0.51 per share, the company has a dividend yield of 2.49%. In comparison, the Banks - Major Regional industry's yield is 2.65%, while the S&P 500's yield is 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.04 is up 6.3% from last year. In the past five-year period, Citigroup has increased its dividend 5 times on a year-over-year basis for an average annual increase of 100.16%. 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. Citigroup's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for C for this fiscal year. The Zacks Consensus Estimate for 2020 is $8.51 per share, representing a year-over-year earnings growth rate of 12.27%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, 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).