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U.S. Bancorp (USB) Could Be a Great Choice

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

U.S. Bancorp in Focus

Based in Minneapolis, U.S. Bancorp (USB) is in the Finance sector, and so far this year, shares have seen a price change of -25.18%. Currently paying a dividend of $0.48 per share, the company has a dividend yield of 5.88%. In comparison, the Banks - Major Regional industry's yield is 4.4%, while the S&P 500's yield is 1.73%.

In terms of dividend growth, the company's current annualized dividend of $1.92 is up 2.1% from last year. In the past five-year period, U.S. Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.47%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. U.S. Bancorp's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, USB expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $4.59 per share, which represents a year-over-year growth rate of 3.15%.

Bottom Line

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.

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, 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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