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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Headquartered in Minneapolis, U.S. Bancorp (USB) is a Finance stock that has seen a price change of -2.64% so far this year. The company is currently shelling out a dividend of $0.52 per share, with a dividend yield of 4%. This compares to the Banks - Major Regional industry's yield of 2.85% and the S&P 500's yield of 1.43%.
Looking at dividend growth, the company's current annualized dividend of $2.08 is up 2% from last year. Over the last 5 years, U.S. Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.01%. 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. U.S. Bancorp's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for USB for this fiscal year. The Zacks Consensus Estimate for 2026 is $5.03 per share, with earnings expected to increase 8.87% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful 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 USB 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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U.S. Bancorp (USB): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).