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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Sallie Mae in Focus

Headquartered in Newark, Sallie Mae (SLM) is a Finance stock that has seen a price change of -9.61% so far this year. Currently paying a dividend of $0.13 per share, the company has a dividend yield of 2.09%. In comparison, the Financial - Consumer Loans industry's yield is 0.54%, while the S&P 500's yield is 1.76%.

In terms of dividend growth, the company's current annualized dividend of $0.52 is up 13% from last year. Over the last 5 years, Sallie Mae has increased its dividend 2 times on a year-over-year basis for an average annual increase of 41.39%. 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. Sallie Mae's current payout ratio is 20%. This means it paid out 20% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SLM for this fiscal year. The Zacks Consensus Estimate for 2025 is $3.07 per share, representing a year-over-year earnings growth rate of 14.55%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 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 SLM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SLM Corporation (SLM) : Free Stock Analysis Report

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

Zacks Investment Research