Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Aflac in Focus
Aflac (AFL - Free Report) is headquartered in Columbus, and is in the Finance sector. The stock has seen a price change of 6.27% since the start of the year. The insurer is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 2.23% compared to the Insurance - Accident and Health industry's yield of 1.08% and the S&P 500's yield of 1.77%.
In terms of dividend growth, the company's current annualized dividend of $1.04 is up 19.5% from last year. Aflac has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.78%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Aflac's payout ratio is 28%, which means it paid out 28% of its trailing 12-month EPS as dividend.
AFL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.04 per share, with earnings expected to increase 18.48% 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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 AFL is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).