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 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.
Community Trust Bancorp in Focus
Headquartered in Pikeville, Community Trust Bancorp (CTBI) is a Finance stock that has seen a price change of 8.19% so far this year. The bank holding company for Community Trust Bank is paying out a dividend of $0.47 per share at the moment, with a dividend yield of 3.96% compared to the Banks - Southeast industry's yield of 2.51% and the S&P 500's yield of 1.49%.
Looking at dividend growth, the company's current annualized dividend of $1.88 is up 4.4% from last year. In the past five-year period, Community Trust Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.09%. 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. Community Trust Bancorp's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CTBI expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $4.38 per share, representing a year-over-year earnings growth rate of 0.46%.
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. 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. That said, they can take comfort from the fact that CTBI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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