Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Colgate-Palmolive in Focus
Based in New York, Colgate-Palmolive (CL - Free Report) is in the Consumer Staples sector, and so far this year, shares have seen a price change of 12.64%. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 2.27%. In comparison, the Soap and Cleaning Materials industry's yield is 2.12%, while the S&P 500's yield is 1.65%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.76 is up 2.9% from last year. Colgate-Palmolive has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 3.28%. 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. Colgate-Palmolive's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
CL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.96 per share, with earnings expected to increase 4.59% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).