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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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Cathay General in Focus
Based in Los Angeles, Cathay General (CATY) is in the Finance sector, and so far this year, shares have seen a price change of 12.75%. The holding company for Cathay Bank is paying out a dividend of $0.34 per share at the moment, with a dividend yield of 2.81% compared to the Banks - West industry's yield of 2.14% and the S&P 500's yield of 1.4%.
Looking at dividend growth, the company's current annualized dividend of $1.36 is up 7.1% from last year. Cathay General has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 10.05%. 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, Cathay's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CATY expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $4.01 per share, representing a year-over-year earnings growth rate of 5.53%.
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. That said, they can take comfort from the fact that CATY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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Cathay General Bancorp (CATY) : Free Stock Analysis Report
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