Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.

NatWest Group in Focus

NatWest Group (NWG) is headquartered in London, and is in the Finance sector. The stock has seen a price change of 27.83% since the start of the year. The bank is currently shelling out a dividend of $0.39 per share, with a dividend yield of 5.94%. This compares to the Banks - Foreign industry's yield of 3.73% and the S&P 500's yield of 1.6%.

Looking at dividend growth, the company's current annualized dividend of $0.77 is up 75% from last year. In the past five-year period, NatWest Group has increased its dividend 5 times on a year-over-year basis for an average annual increase of 46.32%. 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. NatWest's current payout ratio is 52%. This means it paid out 52% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, NWG expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $1.50 per share, with earnings expected to increase 12.78% 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. It's important to keep in mind that not all companies provide 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 must be conscious 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 NWG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).

Story Continues

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

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