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

Fifth Third Bancorp in Focus

Headquartered in Cincinnati, Fifth Third Bancorp (FITB) is a Finance stock that has seen a price change of 27.11% so far this year. The company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 3.38% compared to the Banks - Major Regional industry's yield of 3.48% and the S&P 500's yield of 1.5%.

In terms of dividend growth, the company's current annualized dividend of $1.48 is up 8.8% from last year. In the past five-year period, Fifth Third Bancorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.37%. 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. Fifth Third Bancorp's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for FITB for this fiscal year. The Zacks Consensus Estimate for 2024 is $3.31 per share, representing a year-over-year earnings growth rate of 2.80%.

Bottom Line

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FITB 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).

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