Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
SunTrust in Focus
Headquartered in Atlanta, SunTrust (STI) is a Finance stock that has seen a price change of 51.5% so far this year. The holding company for SunTrust Bank is paying out a dividend of $2.92 per share at the moment, with a dividend yield of 32% compared to the Banks - Major Regional industry's yield of 38.61% and the S&P 500's yield of 0.5%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.04 is up 30% from last year. SunTrust has increased its dividend 53.80 times on a year-over-year basis over the last 5 years for an average annual increase of 4%. 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, SunTrust's payout ratio is 6.19%, which means it paid out 6.19% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for STI for this fiscal year. The Zacks Consensus Estimate for 2018 is $2 per share, representing a year-over-year earnings growth rate of 5.88%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. With that in mind, STI presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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SunTrust Banks, Inc. (STI) : Free Stock Analysis Report
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