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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Wells Fargo in Focus

Wells Fargo (WFC) is headquartered in San Francisco, and is in the Finance sector. The stock has seen a price change of 11.94% since the start of the year. The biggest U.S. mortgage lender is currently shelling out a dividend of $0.4 per share, with a dividend yield of 2.03%. This compares to the Financial - Investment Bank industry's yield of 0.85% and the S&P 500's yield of 1.52%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.60 is up 6.7% from last year. Over the last 5 years, Wells Fargo has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.69%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Wells Fargo's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, WFC expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $5.89 per share, with earnings expected to increase 9.68% from the year ago period.

Bottom Line

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, WFC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).

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