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Why Washington Federal (WAFD) is a Top Dividend Stock for Your Portfolio

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  • WAFD

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.

Washington Federal in Focus

Washington Federal (WAFD) is headquartered in Seattle, and is in the Finance sector. The stock has seen a price change of 37.37% since the start of the year. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2.6%. In comparison, the Banks - West industry's yield is 2.14%, while the S&P 500's yield is 1.35%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.92 is up 1.1% from last year. Over the last 5 years, Washington Federal has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.99%. 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. Washington Federal's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for WAFD for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.83 per share, representing a year-over-year earnings growth rate of 18.41%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. That said, they can take comfort from the fact that WAFD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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