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Why Travelers (TRV) is a Top Dividend Stock for Your Portfolio

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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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Travelers in Focus

Headquartered in New York, Travelers (TRV - Free Report) is a Finance stock that has seen a price change of 5.44% so far this year. The insurer is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 2.3% compared to the Insurance - Property and Casualty industry's yield of 1.28% and the S&P 500's yield of 1.47%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.40 is up 0.9% from last year. In the past five-year period, Travelers has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.64%. 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. Travelers's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for TRV for this fiscal year. The Zacks Consensus Estimate for 2021 is $11.59 per share, with earnings expected to increase 10.59% from the year ago period.

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.

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. That said, they can take comfort from the fact that TRV is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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