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Hanover Insurance Group (THG) is a Top Dividend Stock Right Now: Should You Buy?

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 -4.71% since the start of the year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 2.4%. In comparison, the Insurance - Property and Casualty industry's yield is 1.05%, while the S&P 500's yield is 1.62%.

In terms of dividend growth, the company's current annualized dividend of $3 is up 5.3% from last year. In the past five-year period, Hanover Insurance Group has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.64%. 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.

THG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $10.28 per share, with earnings expected to increase 17.75% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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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