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

Fifth Third Bancorp (FITB) is headquartered in Cincinnati, and is in the Finance sector. The stock has seen a price change of 4.41% since the start of the year. Currently paying a dividend of $0.35 per share, the company has a dividend yield of 3.89%. In comparison, the Banks - Major Regional industry's yield is 3.73%, while the S&P 500's yield is 1.61%.

Looking at dividend growth, the company's current annualized dividend of $1.40 is up 2.9% from last year. Fifth Third Bancorp has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.55%. 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. Fifth Third Bancorp's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.

FITB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $3.29 per share, which represents a year-over-year growth rate of 2.17%.

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. 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. 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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