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Why Mercury General (MCY) is a Great Dividend Stock Right Now

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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

Mercury General (MCY - Free Report) is headquartered in Los Angeles, and is in the Finance sector. The stock has seen a price change of -6.19% since the start of the year. The auto insurance company is paying out a dividend of $0.63 per share at the moment, with a dividend yield of 4.99% compared to the Insurance - Property and Casualty industry's yield of 1.34% and the S&P 500's yield of 1.8%.

In terms of dividend growth, the company's current annualized dividend of $2.50 is up 0.3% from last year. In the past five-year period, Mercury General has increased its dividend 5 times on a year-over-year basis for an average annual increase of 0.41%. 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. Mercury General's current payout ratio is 147%, meaning it paid out 147% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, MCY expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.20 per share, which represents a year-over-year growth rate of 34.15%.

Bottom Line

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 MCY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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