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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Wells Fargo in Focus
Wells Fargo (WFC) is headquartered in San Francisco, and is in the Finance sector. The stock has seen a price change of 4.67% since the start of the year. Currently paying a dividend of $0.45 per share, the company has a dividend yield of 3.73%. In comparison, the Banks - Major Regional industry's yield is 2.8%, while the S&P 500's yield is 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 9.8% from last year. Wells Fargo has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.27%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Wells Fargo's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WFC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.75 per share, representing a year-over-year earnings growth rate of 10.98%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, WFC 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).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Wells Fargo & Company (WFC): Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.