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.
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 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 4.6% since the start of the year. The biggest U.S. mortgage lender is currently shelling out a dividend of $0.4 per share, with a dividend yield of 2.18%. This compares to the Financial - Investment Bank industry's yield of 1% and the S&P 500's yield of 1.56%.
Looking at dividend growth, the company's current annualized dividend of $1.60 is up 6.7% from last year. In the past five-year period, Wells Fargo has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.69%. 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. Wells Fargo's current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WFC for this fiscal year. The Zacks Consensus Estimate for 2025 is $5.85 per share, which represents a year-over-year growth rate of 8.94%.
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.
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 Report
This article originally published on Zacks Investment Research (zacks.com).
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