Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
SunTrust in Focus
SunTrust Banks (NYSE:STI) is headquartered in Atlanta, and is in the Finance sector. The stock has seen a price change of 15.36% since the start of the year. The holding company for SunTrust Bank is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 2.15% compared to the Banks – Major Regional industry’s yield of 2.15% and the S&P 500’s yield of 1.76%.
Taking a look at the company’s dividend growth, its current annualized dividend of $1.60 is up 21.2% from last year. Over the last 5 years, SunTrust has increased its dividend 4 times on a year-over-year basis for an average annual increase of 29.98%.
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. SunTrust’s current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for STI for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.61 per share, representing a year-over-year earnings growth rate of 38.86%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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.
That said, they can take comfort from the fact that STI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).