Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
City Holding in Focus
Based in Charleston, City Holding (CHCO) is in the Finance sector, and so far this year, shares have seen a price change of 0.67%. The bank holding company for City National Bank of West Virginia is currently shelling out a dividend of $0.79 per share, with a dividend yield of 2.65%. This compares to the Banks - Southeast industry's yield of 2.4% and the S&P 500's yield of 1.56%.
Looking at dividend growth, the company's current annualized dividend of $3.16 is up 7.7% from last year. City Holding has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.35%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, City Holding's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CHCO expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $8.02 per share, representing a year-over-year earnings growth rate of 1.65%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CHCO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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City Holding Company (CHCO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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