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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
BlackRock in Focus
Headquartered in New York, BlackRock (BLK - Free Report) is a Finance stock that has seen a price change of 9.91% so far this year. The investment firm is paying out a dividend of $3.63 per share at the moment, with a dividend yield of 2.63% compared to the Financial - Investment Management industry's yield of 1.62% and the S&P 500's yield of 1.66%.
Looking at dividend growth, the company's current annualized dividend of $14.52 is up 10% from last year. BlackRock has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.50%. 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. BlackRock's current payout ratio is 48%. This means it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BLK expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $29.45 per share, with earnings expected to increase 3.41% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, BLK 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).