Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 tha t dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Regions Financial in Focus
Based in Birmingham, Regions Financial (RF) is in the Finance sector, and so far this year, shares have seen a price change of 17.34%. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.57%. In comparison, the Banks - Southeast industry's yield is 1.49%, while the S&P 500's yield is 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.56 is up 21.7% from last year. Regions Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 25.33%. 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. Regions Financial's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
RF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.58 per share, which represents a year-over-year growth rate of 16.18%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, RF 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).