All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Webster Financial in Focus
Webster Financial (WBS) is headquartered in Waterbury, and is in the Finance sector. The stock has seen a price change of 11.31% since the start of the year. The holding company for Webster Bank is paying out a dividend of $0.33 per share at the moment, with a dividend yield of 2.11% compared to the Banks - Northeast industry's yield of 1.55% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $1.32 is up 28.2% from last year. Webster Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.85%. 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. Webster Financial's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WBS expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.61 per share, which represents a year-over-year growth rate of 39.38%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WBS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
We are reissuing this article to correct a mistake. The original article should no longer be relied upon.
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