Why State Street Corporation (STT) is a Top Dividend Stock for Your Portfolio

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

State Street Corporation in Focus

Based in Boston, State Street Corporation (STT) is in the Finance sector, and so far this year, shares have seen a price change of -25.98%. The company is currently shelling out a dividend of $0.57 per share, with a dividend yield of 3.31%. This compares to the Banks - Major Regional industry's yield of 3.15% and the S&P 500's yield of 1.47%.

In terms of dividend growth, the company's current annualized dividend of $2.28 is up 4.6% from last year. Over the last 5 years, State Street Corporation has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.82%. 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. Right now, State Street Corporation's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.

STT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $7.92 per share, representing a year-over-year earnings growth rate of 6.45%.

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. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, STT 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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