Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
BGC Partners in Focus
Headquartered in New York, BGC Partners (BGCP - Free Report) is a Finance stock that has seen a price change of -26.87% so far this year. The brokerage company is currently shelling out a dividend of $0.18 per share, with a dividend yield of 6.52%. This compares to the Financial - Investment Bank industry's yield of 0.73% and the S&P 500's yield of 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.72 is up 2.9% from last year. BGC Partners has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 11.46%. 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. BGC Partners's current payout ratio is 57%. This means it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BGCP expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.38 per share, with earnings expected to increase 15% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 BGCP is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).