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Banco Itau (ITUB) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.

Banco Itau in Focus

Headquartered in Sao Paulo, Banco Itau (ITUB) is a Finance stock that has seen a price change of -0.58% so far this year. The financial holding company is currently shelling out a dividend of $0.04 per share, with a dividend yield of 5.69%. This compares to the Banks - Foreign industry's yield of 3.99% and the S&P 500's yield of 1.6%.

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Taking a look at the company's dividend growth, its current annualized dividend of $0.39 is up 101% from last year. Banco Itau has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 11.98%. 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. Banco Itau's current payout ratio is 5%, meaning it paid out 5% of its trailing 12-month EPS as dividend.

ITUB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $0.82 per share, with earnings expected to increase 12.33% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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, ITUB 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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Zacks Investment Research