All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Old Republic International in Focus
Based in Chicago, Old Republic International (ORI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 5.75%. The insurance underwriter is currently shelling out a dividend of $0.19 per share, with a dividend yield of 3.45%. This compares to the Insurance - Multi line industry's yield of 1.82% and the S&P 500's yield of 1.81%.
Looking at dividend growth, the company's current annualized dividend of $0.78 is up 2.6% from last year. In the past five-year period, Old Republic International has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.52%. 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. Old Republic's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
ORI is expecting earnings to expand this fiscal year as well. 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. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that ORI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).