This is Why City Holding (CHCO) is a Great Dividend Stock

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 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.

City Holding in Focus

Headquartered in Charleston, City Holding (CHCO) is a Finance stock that has seen a price change of 3.14% so far this year. The bank holding company for City National Bank of West Virginia is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.85% compared to the Banks - Southeast industry's yield of 2.16% and the S&P 500's yield of 1.69%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.40 is up 3.4% from last year. City Holding has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.88%. 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. City Holding's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.

CHCO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $6.55 per share, which represents a year-over-year growth rate of 15.72%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CHCO is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).

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