Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.

Hanover Insurance Group in Focus

Hanover Insurance Group (THG Quick QuoteTHG - Free Report) is headquartered in Worcester, and is in the Finance sector. The stock has seen a price change of 2.51% since the start of the year. The insurance company is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.27% compared to the Insurance - Property and Casualty industry's yield of 0.53% and the S&P 500's yield of 1.52%.

In terms of dividend growth, the company's current annualized dividend of $3.60 is up 4.3% 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 6.96%. 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 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.

THG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $14.37 per share, with earnings expected to increase 7.72% from the year ago period.

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. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, THG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).