All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 5.97% 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 2.24% compared to the Insurance - Accident and Health industry's yield of 1.06% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $1.04 is up 19.5% from last year. In the past five-year period, Aflac has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.78%. 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. Aflac's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AFL for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.06 per share, with earnings expected to increase 19.06% 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. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AFL 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).