Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Morgan Stanley in Focus
Morgan Stanley (MS - Free Report) is headquartered in New York, and is in the Finance sector. The stock has seen a price change of -5.77% since the start of the year. The investment bank is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.43%. This compares to the Financial - Investment Bank industry's yield of 0.73% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 33.3% from last year. In the past five-year period, Morgan Stanley has increased its dividend 4 times on a year-over-year basis for an average annual increase of 40.96%. 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, Morgan Stanley's payout ratio is 22%, which means it paid out 22% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MS for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.86 per share, which represents a year-over-year growth rate of 35%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).