Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.

Fifth Third Bancorp in Focus

Based in Cincinnati, Fifth Third Bancorp (FITB) is in the Finance sector, and so far this year, shares have seen a price change of 24.41%. Currently paying a dividend of $0.35 per share, the company has a dividend yield of 3.26%. In comparison, the Banks - Major Regional industry's yield is 3.24%, while the S&P 500's yield is 1.53%.

Looking at dividend growth, the company's current annualized dividend of $1.40 is up 2.9% from last year. In the past five-year period, Fifth Third Bancorp has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.55%. 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. Right now, Fifth Third Bancorp's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, FITB expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $3.30 per share, with earnings expected to increase 2.48% 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. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FITB is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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