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.

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.

Wells Fargo in Focus

Headquartered in San Francisco, Wells Fargo (WFC) is a Finance stock that has seen a price change of -4.93% so far this year. Currently paying a dividend of $0.4 per share, the company has a dividend yield of 2.4%. In comparison, the Financial - Investment Bank industry's yield is 1.02%, while the S&P 500's yield is 1.58%.

Looking at dividend growth, the company's current annualized dividend of $1.60 is up 6.7% from last year. In the past five-year period, 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.

Earnings growth looks solid for WFC for this fiscal year. The Zacks Consensus Estimate for 2025 is $5.87 per share, which represents a year-over-year growth rate of 9.31%.

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.

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 must be conscious 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 WFC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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Wells Fargo & Company (WFC) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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