Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
AllianceBernstein in Focus
AllianceBernstein (AB - Free Report) is headquartered in New York, and is in the Finance sector. The stock has seen a price change of 20.56% since the start of the year. The investment management company is paying out a dividend of $0.73 per share at the moment, with a dividend yield of 9.67% compared to the Financial - Investment Management industry's yield of 2.84% and the S&P 500's yield of 1.77%.
Looking at dividend growth, the company's current annualized dividend of $2.92 is up 37.1% from last year. Over the last 5 years, AllianceBernstein has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.90%. 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. AllianceBernstein's current payout ratio is 108%. This means it paid out 108% of its trailing 12-month EPS as dividend.
AB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.60 per share, with earnings expected to increase 13.04% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that AB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).