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HP (HPQ) is a Top Dividend Stock Right Now: Should You Buy?

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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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

HP in Focus

Headquartered in Palo Alto, HP (HPQ - Free Report) is a Computer and Technology stock that has seen a price change of 22.16% so far this year. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 2.58%. In comparison, the Computer - Mini computers industry's yield is 0.93%, while the S&P 500's yield is 1.4%.

Looking at dividend growth, the company's current annualized dividend of $0.78 is up 10.6% from last year. Over the last 5 years, HP has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.95%. 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. Right now, HP's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HPQ for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.25 per share, which represents a year-over-year growth rate of 42.54%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 must be conscious 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 HPQ 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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