Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Colgate-Palmolive in Focus
Headquartered in New York, Colgate-Palmolive (CL - Free Report) is a Consumer Staples stock that has seen a price change of 10.15% so far this year. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 2.32%. In comparison, the Soap and Cleaning Materials industry's yield is 2.07%, while the S&P 500's yield is 1.63%.
Looking at dividend growth, the company's current annualized dividend of $1.76 is up 2.9% from last year. Over the last 5 years, Colgate-Palmolive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.26%. 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. Colgate-Palmolive's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CL for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.96 per share, which represents a year-over-year growth rate of 4.59%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, CL 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).