Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
City Holding in Focus
Based in Charleston, City Holding (CHCO) is in the Finance sector, and so far this year, shares have seen a price change of 6.45%. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.53 per share at the moment, with a dividend yield of 2.95% compared to the Banks - Southeast industry's yield of 1.67% and the S&P 500's yield of 1.99%.
Looking at dividend growth, the company's current annualized dividend of $2.12 is up 11% from last year. In the past five-year period, City Holding has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.65%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, City Holding's payout ratio is 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CHCO for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.33 per share, representing a year-over-year earnings growth rate of 3.29%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CHCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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