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.

Banco Santander in Focus

Based in Madrid, Banco Santander (SAN) is in the Finance sector, and so far this year, shares have seen a price change of 73.68%. Currently paying a dividend of $0.09 per share, the company has a dividend yield of 2.29%. In comparison, the Banks - Foreign industry's yield is 3.8%, while the S&P 500's yield is 1.57%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.18 is up 20% from last year. Over the last 5 years, Banco Santander has increased its dividend 4 times on a year-over-year basis for an average annual increase of 17.90%. 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 Santander's current payout ratio is 18%. This means it paid out 18% of its trailing 12-month EPS as dividend.

SAN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $0.96 per share, with earnings expected to increase 15.66% from the year ago period.

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. 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, SAN 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).

Story Continues

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This article originally published on Zacks Investment Research (zacks.com).

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