Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Wells Fargo in Focus
Wells Fargo (WFC) is headquartered in San Francisco, and is in the Finance sector. The stock has seen a price change of 12.19% since the start of the year. The biggest U.S. mortgage lender is currently shelling out a dividend of $0.4 per share, with a dividend yield of 2.03%. This compares to the Financial - Investment Bank industry's yield of 0.85% and the S&P 500's yield of 1.5%.
Looking at dividend growth, the company's current annualized dividend of $1.60 is up 6.7% from last year. Over the last 5 years, Wells Fargo has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.69%. 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, Wells Fargo's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
WFC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.84 per share, representing a year-over-year earnings growth rate of 8.75%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful 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 WFC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
Only $1 to See All Zacks' Buys and Sells
We're not kidding.
Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.
Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.
See Stocks Now >>Wells Fargo & Company (WFC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
