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Why Hanover Insurance Group (THG) 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. 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.

Hanover Insurance Group in Focus

Hanover Insurance Group (THG - Free Report) is headquartered in Worcester, and is in the Finance sector. The stock has seen a price change of 8.34% since the start of the year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 2.11%. In comparison, the Insurance - Property and Casualty industry's yield is 1.03%, while the S&P 500's yield is 1.54%.

Looking at dividend growth, the company's current annualized dividend of $3 is up 5.3% from last year. Over the last 5 years, Hanover Insurance Group has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.90%. 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. Hanover Insurance's current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for THG for this fiscal year. The Zacks Consensus Estimate for 2022 is $10.55 per share, representing a year-over-year earnings growth rate of 20.85%.

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. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, THG 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).


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