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Why Cathay General (CATY) is a Great Dividend Stock Right Now

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 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.

Cathay General in Focus

Based in Los Angeles, Cathay General (CATY) is in the Finance sector, and so far this year, shares have seen a price change of -1.21%. The holding company for Cathay Bank is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.2%. This compares to the Banks - West industry's yield of 2.61% and the S&P 500's yield of 1.74%.

Looking at dividend growth, the company's current annualized dividend of $1.36 is up 7.1% from last year. Cathay General has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 8.28%. 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. Cathay's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, CATY expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $4.71 per share, with earnings expected to increase 23.95% 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CATY 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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