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.
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.
Nasdaq in Focus
Headquartered in New York, Nasdaq (NDAQ - Free Report) is a Finance stock that has seen a price change of 14.12% so far this year. The exchange operator is currently shelling out a dividend of $0.44 per share, with a dividend yield of 2.01%. This compares to the Securities and Exchanges industry's yield of 1.38% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $1.76 is up 20.5% from last year. Nasdaq has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 32.63%. 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. Right now, Nasdaq's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
NDAQ is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.82 per share, which represents a year-over-year growth rate of 18.72%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that NDAQ is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).