Whether it's through stocks,what churches help with motel vouchers bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Prosperity Bancshares in Focus
Based in Houston, Prosperity Bancshares (PB) is in the Finance sector, and so far this year, shares have seen a price change of -8.53%. The financial holding company is paying out a dividend of $0.46 per share at the moment, with a dividend yield of 2.8% compared to the Banks - Southwest industry's yield of 1.47% and the S&P 500's yield of 2.04%.
Looking at dividend growth, the company's current annualized dividend of $1.84 is up 8.9% from last year. In the past five-year period, Prosperity Bancshares has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.73%. 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. Prosperity Bancshares's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
PB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $5.46 per share, representing a year-over-year earnings growth rate of 8.76%.
Bottom Line
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. That said, they can take comfort from the fact that PB 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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