All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in Boston, State Street Corporation (STT) is a Finance stock that has seen a price change of 19.39% so far this year. The company is paying out a dividend of $0.84 per share at the moment, with a dividend yield of 2.18% compared to the Banks - Major Regional industry's yield of 2.89% and the S&P 500's yield of 1.39%.
Looking at dividend growth, the company's current annualized dividend of $3.36 is up 7.7% from last year. Over the last 5 years, State Street Corporation has increased its dividend 4 times on a year-over-year basis for an average annual increase of 9.16%. 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. State Street's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
STT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $12.26 per share, with earnings expected to increase 19.03% 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. But, not every company offers 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. With that in mind, STT 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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State Street Corporation (STT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).