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.
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.
Washington Federal in Focus
Washington Federal (WAFD – Free Report) is headquartered in Seattle, and is in the Finance sector. The stock has seen a price change of 28.63% since the start of the year. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2.78%. In comparison, the Banks – West industry’s yield is 2.16%, while the S&P 500’s yield is 1.37%.
Taking a look at the company’s dividend growth, its current annualized dividend of $0.92 is up 1.1% from last year. Over the last 5 years, Washington Federal has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.99%. 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. Washington Federal’s current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.
WAFD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $2.83 per share, with earnings expected to increase 18.41% from the year ago period.
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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 WAFD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).