All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. 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 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.
BancorpSouth in Focus
Based in Tupelo, BancorpSouth (BXS) is in the Finance sector, and so far this year, shares have seen a price change of -14.96%. The bank is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 2.77% compared to the Banks – Southeast industry’s yield of 1.85% and the S&P 500’s yield of 1.92%.
Looking at dividend growth, the company’s current annualized dividend of $0.74 is up 4.2% from last year. In the past five-year period, BancorpSouth has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.70%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. BancorpSouth’s current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BXS for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.43 per share, representing a year-over-year earnings growth rate of 5.65%.
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 must be conscious 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 BXS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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