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

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

State Street Corporation in Focus

State Street Corporation (STT) is headquartered in Boston, and is in the Finance sector. The stock has seen a price change of 27.41% since the start of the year. The company is currently shelling out a dividend of $0.57 per share, with a dividend yield of 2.46%. This compares to the Banks - Major Regional industry's yield of 2.5% and the S&P 500's yield of 1.38%.

In terms of dividend growth, the company's current annualized dividend of $2.28 is up 9.6% from last year. State Street Corporation has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.49%. 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. Right now, State Street Corporation's payout ratio is 32%, which means it paid out 32% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, STT expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $7.32 per share, representing a year-over-year earnings growth rate of 9.25%.

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 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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