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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Old Republic International in Focus
Old Republic International (ORI - Free Report) is headquartered in Chicago, and is in the Finance sector. The stock has seen a price change of 1.96% since the start of the year. Currently paying a dividend of $0.19 per share, the company has a dividend yield of 3.58%. In comparison, the Insurance - Multi line industry's yield is 2.02%, while the S&P 500's yield is 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%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ORI expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.75 per share, representing a year-over-year earnings 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. It's important to keep in mind that not all companies provide 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. 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).