Why City Holding (CHCO) is a Great Dividend Stock Right Now
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.
City Holding in Focus
Based in Charleston, City Holding (CHCO) is in the Finance sector, and so far this year, shares have seen a price change of 4.49%. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.81% compared to the Banks - Southeast industry's yield of 2.22% and the S&P 500's yield of 1.65%.
Looking at dividend growth, the company's current annualized dividend of $2.40 is up 3.4% from last year. Over the last 5 years, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.88%. 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, City Holding's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
CHCO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $6.42 per share, which represents a year-over-year growth rate of 13.43%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 CHCO 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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