Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Banco Itau in Focus
Banco Itau (ITUB) is headquartered in Sao Paulo, and is in the Finance sector. The stock has seen a price change of 17.41% since the start of the year. Currently paying a dividend of $0.04 per share, the company has a dividend yield of 4.09%. In comparison, the Banks - Foreign industry's yield is 4.61%, while the S&P 500's yield is 1.7%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.23 is up 48.4% 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 10.24%. 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. Banco Itau's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ITUB expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $0.73 per share, representing a year-over-year earnings growth rate of 19.67%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that ITUB is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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