Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Principal Financial in Focus
Principal Financial (PFG - Free Report) is headquartered in Des Moines, and is in the Finance sector. The stock has seen a price change of -17.4% since the start of the year. The financial services company is currently shelling out a dividend of $0.53 per share, with a dividend yield of 3.64%. This compares to the Financial - Investment Management industry's yield of 2.7% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.12 is up 13.4% from last year. Principal Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.69%. 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. Principal Financial's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
PFG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.82 per share, with earnings expected to increase 15.48% from the year ago period.
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. That said, they can take comfort from the fact that PFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).