Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Banco Itau in Focus

Based in Sao Paulo, Banco Itau (ITUB) is in the Finance sector, and so far this year, shares have seen a price change of -6.62%. The financial holding company is paying out a dividend of $0.03 per share at the moment, with a dividend yield of 5.69% compared to the Banks - Foreign industry's yield of 3.86% and the S&P 500's yield of 1.55%.

Looking at dividend growth, the company's current annualized dividend of $0.37 is up 81.4% from last year. In the past five-year period, Banco Itau has increased its dividend 3 times on a year-over-year basis for an average annual increase of 15.79%. 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. Banco Itau's current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ITUB for this fiscal year. The Zacks Consensus Estimate for 2024 is $0.78 per share, with earnings expected to increase 6.85% from the year ago period.

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. It's important to keep in mind that not all companies provide 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. 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, ITUB 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).