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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Wells Fargo in Focus
Wells Fargo (WFC) is headquartered in San Francisco, and is in the Finance sector. The stock has seen a price change of 1.5% since the start of the year. The biggest U.S. mortgage lender is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 3.85% compared to the Banks - Major Regional industry's yield of 2.87% and the S&P 500's yield of 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 9.8% from last year. Over the last 5 years, Wells Fargo has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.27%. 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. Wells Fargo's current payout ratio is 39%. This means it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WFC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.84 per share, representing a year-over-year earnings growth rate of 13.08%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WFC 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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Wells Fargo & Company (WFC) : Free Stock Analysis Report
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