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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
SunTrust in Focus
SunTrust (STI) is headquartered in Atlanta, and is in the Finance sector. The stock has seen a price change of 17.25% since the start of the year. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 3.38%. In comparison, the Banks - Major Regional industry's yield is 2.96%, while the S&P 500's yield is 1.96%.
In terms of dividend growth, the company's current annualized dividend of $2 is up 11.1% from last year. Over the last 5 years, SunTrust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 26.85%. 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. SunTrust's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
STI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.86 per share, representing a year-over-year earnings growth rate of 2.09%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, STI 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).
SunTrust Banks, Inc. (NYSE:STI
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