Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 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.
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 5.77%. Currently paying a dividend of $0.53 per share, the company has a dividend yield of 2.97%. In comparison, the Banks - Southeast industry's yield is 1.38%, while the S&P 500's yield is 2%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.12 is up 11% from last year. In the past five-year period, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.65%. 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. City Holding'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, CHCO expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.21 per share, with earnings expected to increase 0.97% from the year ago period.
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.
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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