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.
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.
Pfizer in Focus
Pfizer (PFE - Free Report) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of 9.47% since the start of the year. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 3.43%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.79%, while the S&P 500's yield is 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.36 is up 6.3% from last year. Pfizer has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.36%. 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. Pfizer's current payout ratio is 50%. This means it paid out 50% of its trailing 12-month EPS as dividend.
PFE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.99 per share, which represents a year-over-year growth rate of 12.83%.
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. 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 PFE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).