Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
KeyCorp in Focus
Based in Cleveland, KeyCorp (KEY) is in the Finance sector, and so far this year, shares have seen a price change of 10.49%. The bank holding company is currently shelling out a dividend of $0.17 per share, with a dividend yield of 4.16%. This compares to the Banks - Major Regional industry's yield of 3.17% and the S&P 500's yield of 1.99%.
Looking at dividend growth, the company's current annualized dividend of $0.68 is up 20.4% from last year. Over the last 5 years, KeyCorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 20.96%. 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. KeyCorp's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KEY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.89 per share, which represents a year-over-year growth rate of 9.25%.
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.
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. With that in mind, KEY 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).