All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in Los Angeles, Cathay General (CATY) is a Finance stock that has seen a price change of 9.4% so far this year. The holding company for Cathay Bank is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.87%. This compares to the Banks - West industry's yield of 2.84% and the S&P 500's yield of 1.39%.
Looking at dividend growth, the company's current annualized dividend of $1.52 is up 11.8% from last year. Over the last 5 years, Cathay General has increased its dividend 1 times on a year-over-year basis for an average annual increase of 2.11%. 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 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
CATY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $5.14 per share, with earnings expected to increase 13.22% from the year ago period.
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. 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, CATY presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Cathay General Bancorp (CATY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).