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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
Fifth Third Bancorp in Focus
Fifth Third Bancorp (FITB) is headquartered in Cincinnati, and is in the Finance sector. The stock has seen a price change of -5.94% since the start of the year. The company is currently shelling out a dividend of $0.37 per share, with a dividend yield of 3.72%. This compares to the Banks - Major Regional industry's yield of 3.55% and the S&P 500's yield of 1.57%.
In terms of dividend growth, the company's current annualized dividend of $1.48 is up 2.8% from last year. Fifth Third Bancorp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.91%. 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. Fifth Third Bancorp's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FITB expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $3.62 per share, representing a year-over-year earnings growth rate of 7.42%.
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. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FITB 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).