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 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
Wells Fargo (WFC) is headquartered in San Francisco, and is in the Finance sector. The stock has seen a price change of -10.17% since the start of the year. The biggest U.S. mortgage lender is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 2.54% compared to the Financial - Investment Bank industry's yield of 1.26% and the S&P 500's yield of 1.64%.
In terms of dividend growth, the company's current annualized dividend of $1.60 is up 6.7% from last year. Wells Fargo has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 27.29%. 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. Wells Fargo's current payout ratio is 29%, meaning 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 $5.86 per share, with earnings expected to increase 9.12% 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.
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 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 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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Wells Fargo & Company (WFC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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