Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Old Republic International in Focus
Headquartered in Chicago, Old Republic International (ORI - Free Report) is a Finance stock that has seen a price change of 1.96% so far this year. The insurance underwriter is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 3.58% compared to the Insurance - Multi line industry's yield of 2.02% and the S&P 500's yield of 1.81%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.78 is up 2.6% from last year. Over the last 5 years, Old Republic International has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.52%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Old Republic's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ORI for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.75 per share, which represents a year-over-year growth rate of 57.66%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ORI presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).