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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
East West Bancorp in Focus
Headquartered in Pasadena, East West Bancorp (EWBC) is a Finance stock that has seen a price change of 4.58% so far this year. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.16%. In comparison, the Banks - West industry's yield is 1.93%, while the S&P 500's yield is 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.10 is up 4.3% from last year. Over the last 5 years, East West Bancorp has increased its dividend 3 times on a year-over-year basis for an average annual increase of 6.47%. 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. East West Bancorp's current payout ratio is 23%, meaning it paid out 23% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EWBC for this fiscal year. The Zacks Consensus Estimate for 2020 is $4.69 per share, representing a year-over-year earnings growth rate of 1.74%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, EWBC 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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East West Bancorp, Inc. (EWBC) : Free Stock Analysis Report
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