Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Exxon Mobil in Focus
Exxon Mobil (XOM - Free Report) is headquartered in Irving, and is in the Oils-Energy sector. The stock has seen a price change of 1.65% since the start of the year. The oil and natural gas company is currently shelling out a dividend of $0.82 per share, with a dividend yield of 3.86%. This compares to the Oil and Gas - Integrated - International industry's yield of 2.53% and the S&P 500's yield of 1.8%.
In terms of dividend growth, the company's current annualized dividend of $3.28 is up 7.2% from last year. Exxon Mobil has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.81%. 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. Exxon's current payout ratio is 86%, meaning it paid out 86% of its trailing 12-month EPS as dividend.
XOM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.60 per share, which represents a year-over-year growth rate of 28.13%.
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. Income investors have to be mindful 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 XOM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).