Why City Holding (CHCO) is a Top Dividend Stock for Your Portfolio
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
Headquartered in Charleston, City Holding (CHCO) is a Finance stock that has seen a price change of 5.67% so far this year. The bank holding company for City National Bank of West Virginia is currently shelling out a dividend of $0.6 per share, with a dividend yield of 2.78%. This compares to the Banks - Southeast industry's yield of 2.11% and the S&P 500's yield of 1.64%.
Looking at dividend growth, the company's current annualized dividend of $2.40 is up 3.4% 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 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. City Holding's current payout ratio is 40%. This 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 $6.55 per share, representing a year-over-year earnings growth rate of 15.72%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CHCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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