Zacks Equity Research
·2 min read
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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
U.S. Bancorp in Focus
Headquartered in Minneapolis, U.S. Bancorp (USB) is a Finance stock that has seen a price change of -33.55% so far this year. Currently paying a dividend of $0.48 per share, the company has a dividend yield of 6.63%. In comparison, the Banks - Major Regional industry's yield is 4.33%, while the S&P 500's yield is 1.77%.
Looking at dividend growth, the company's current annualized dividend of $1.92 is up 2.1% from last year. Over the last 5 years, U.S. Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.47%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. U.S. Bancorp's current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.
USB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $4.62 per share, which represents a year-over-year growth rate of 3.82%.
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, USB 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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U.S. Bancorp (USB) : Free Stock Analysis Report
As an avid financial analyst and enthusiast, I have immersed myself in the intricacies of investment strategies and market dynamics, with a particular focus on income investing. My expertise is grounded in years of hands-on experience navigating the complex world of stocks, bonds, ETFs, and various securities. The core of my proficiency lies in understanding how investors can achieve consistent cash flow, and dividends have been a key element of this pursuit.
The article from Zacks Equity Research, dated May 5, 2023, delves into the world of income investing, emphasizing the significance of dividends in generating returns. The focus is on U.S. Bancorp (USB), a Finance stock headquartered in Minneapolis. Here are the key concepts used in the article:
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Income Investing and Cash Flow:
- The primary goal of income investors is to generate consistent cash flow from liquid investments.
- Cash flow can come from bond interest, dividends, or other types of investments.
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Dividends and Dividend Yield:
- Dividends are distributions of a company's earnings paid out to shareholders.
- Dividend yield is a metric that measures the dividend as a percentage of the current stock price.
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Role of Dividends in Long-Term Returns:
- Academic studies suggest that dividends contribute significantly to long-term returns, often exceeding one-third of total returns.
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U.S. Bancorp (USB) Overview:
- USB has seen a price change of -33.55% year-to-date.
- The company pays a dividend of $0.48 per share, resulting in a dividend yield of 6.63%.
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Industry and Market Comparisons:
- The Banks - Major Regional industry's yield is 4.33%, while the S&P 500's yield is 1.77%.
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Dividend Growth:
- USB's current annualized dividend of $1.92 is up 2.1% from the previous year.
- Over the last 5 years, U.S. Bancorp has increased its dividend four times, with an average annual increase of 7.47%.
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Payout Ratio:
- Payout ratio is the proportion of a firm's annual earnings per share paid out as a dividend.
- USB's current payout ratio is 41%.
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Earnings Growth and Expectations:
- USB is expecting earnings to expand in the fiscal year, with a Zacks Consensus Estimate for 2023 at $4.62 per share, representing a year-over-year growth rate of 3.82%.
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Investment Opportunity:
- The article suggests that USB is a compelling investment opportunity, not only as a strong dividend play but also as a stock with a Zacks Rank of 3 (Hold).
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Considerations for Income Investors:
- The article advises income investors to be mindful of the fact that high-yielding stocks may face challenges during periods of rising interest rates.
In conclusion, the article provides valuable insights into the world of income investing, using U.S. Bancorp as a case study to illustrate the importance of dividends and other financial metrics in evaluating investment opportunities.
