Why Cathay General (CATY) is a Top Dividend Stock for Your Portfolio

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.

Cathay General in Focus

Headquartered in Los Angeles, Cathay General (CATY) is a Finance stock that has seen a price change of -9.63% so far this year. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 3.5%. In comparison, the Banks - West industry's yield is 2.79%, while the S&P 500's yield is 1.6%.

Looking at dividend growth, the company's current annualized dividend of $1.36 is up 7.1% from last year. Over the last 5 years, Cathay General has increased its dividend 3 times on a year-over-year basis for an average annual increase of 9.32%. 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. Cathay's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.

CATY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $4.41 per share, with earnings expected to increase 16.05% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CATY 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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