All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.
Pfizer in Focus
Pfizer (PFE - Free Report) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of 22.23% since the start of the year. The drugmaker is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.07%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.59% and the S&P 500's yield of 1.79%.
Looking at dividend growth, the company's current annualized dividend of $1.36 is up 6.3% from last year. Over the last 5 years, Pfizer has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.12%. 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, Pfizer's payout ratio is 47%, which means it paid out 47% of its trailing 12-month EPS as dividend.
PFE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.99 per share, which represents a year-over-year growth rate of 12.83%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. 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 PFE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).