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 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.
Banco Itau in Focus
Banco Itau (ITUB) is headquartered in Sao Paulo, and is in the Finance sector. The stock has seen a price change of -7.22% since the start of the year. The financial holding company is currently shelling out a dividend of $0.04 per share, with a dividend yield of 4.28%. This compares to the Banks - Foreign industry's yield of 3.67% and the S&P 500's yield of 1.8%.
Looking at dividend growth, the company's current annualized dividend of $0.19 is up 22.6% from last year. In the past five-year period, Banco Itau has increased its dividend 2 times on a year-over-year basis for an average annual increase of 4.79%. 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. Right now, Banco Itau's payout ratio is 6%, which means it paid out 6% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ITUB for this fiscal year. The Zacks Consensus Estimate for 2023 is $0.69 per share, with earnings expected to increase 13.11% from the year ago period.
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. That said, they can take comfort from the fact that ITUB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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