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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 -7.29% since the start of the year. The company is currently shelling out a dividend of $0.42 per share, with a dividend yield of 3.06%. This compares to the Banks - Major Regional industry's yield of 2.65% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.68 is up 6.3% 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 12.01%. 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 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.42 per share, representing a year-over-year earnings growth rate of 1.84%.
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.
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 have to be mindful 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).
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