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.
Mercury General in Focus
Headquartered in Los Angeles, Mercury General (MCY - Free Report) is a Finance stock that has seen a price change of 0.3% so far this year. The auto insurance company is paying out a dividend of $4.72 per share at the moment, with a dividend yield of 147% compared to the Insurance - Property and Casualty industry's yield of 34.15% and the S&P 500's yield of 0.63%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.77 is up 0.4% from last year. Over the last 5 years, Mercury General has increased its dividend 0.40 times on a year-over-year basis for an average annual increase of 5%. 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. Mercury General's current payout ratio is -0.88%, meaning it paid out -0.88% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MCY for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.50 per share, with earnings expected to increase 3.08% 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. However, not all companies offer 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. With that in mind, MCY 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).