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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Marathon Petroleum in Focus
Marathon Petroleum (MPC - Free Report) is headquartered in Findlay, and is in the Oils-Energy sector. The stock has seen a price change of 27.1% since the start of the year. The refiner is currently shelling out a dividend of $0.46 per share, with a dividend yield of 2.19%. This compares to the Oil and Gas - Refining and Marketing industry's yield of 1.99% and the S&P 500's yield of 1.81%.
In terms of dividend growth, the company's current annualized dividend of $1.84 is up 21.1% from last year. Marathon Petroleum has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 19.07%. 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. Marathon Petroleum's current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MPC for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.05 per share, representing a year-over-year earnings growth rate of 32.89%.
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 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 MPC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).