All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 15.83% since the start of the year. The bank is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 6.46% compared to the Banks - Foreign industry's yield of 3.66% and the S&P 500's yield of 1.61%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.76 is up 72.7% from last year. NatWest Group has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 41.06%. Future dividend growth will depend on earnings growth as well as 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 23%. This means it paid out 23% of its trailing 12-month EPS as dividend.

NWG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $1.42 per share, representing a year-over-year earnings growth rate of 6.77%.

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.

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, NWG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).

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

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