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 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.
State Street Corporation in Focus
Headquartered in Boston, State Street Corporation (STT) is a Finance stock that has seen a price change of 6.33% so far this year. The company is currently shelling out a dividend of $0.57 per share, with a dividend yield of 2.31%. This compares to the Banks - Major Regional industry's yield of 2.7% and the S&P 500's yield of 1.37%.
Looking at dividend growth, the company's current annualized dividend of $2.28 is up 4.6% from last year. State Street Corporation has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.29%. 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, State Street Corporation's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, STT expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $8.46 per share, representing a year-over-year earnings growth rate of 13.71%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. 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, STT 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).
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State Street Corporation (STT): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
