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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
CNO Financial in Focus
Headquartered in Carmel, CNO Financial (CNO - Free Report) is a Finance stock that has seen a price change of -8.66% so far this year. The insurance holding company is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 2.9% compared to the Insurance - Multi line industry's yield of 2.61% and the S&P 500's yield of 1.65%.
In terms of dividend growth, the company's current annualized dividend of $0.48 is up 11.6% from last year. In the past five-year period, CNO Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.69%. 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. Right now, CNO's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CNO for this fiscal year. The Zacks Consensus Estimate for 2020 is $2 per share, which represents a year-over-year growth rate of 11.11%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, CNO 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).