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Why State Street Corporation (STT) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.

State Street Corporation in Focus

State Street Corporation (STT) is headquartered in Boston, and is in the Finance sector. The stock has seen a price change of -6.51% since the start of the year. The company is currently shelling out a dividend of $0.69 per share, with a dividend yield of 3.81%. This compares to the Banks - Major Regional industry's yield of 3.87% and the S&P 500's yield of 1.6%.

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Looking at dividend growth, the company's current annualized dividend of $2.76 is up 4.5% from last year. In the past five-year period, State Street Corporation has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.65%. 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. State Street Corporation's current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.

STT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $7.87 per share, which represents a year-over-year growth rate of 2.74%.

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.

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 STT 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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