Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Sun Life in Focus
Sun Life (SLF - Free Report) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of -4.94% since the start of the year. The financial services company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 3.72% compared to the Insurance - Life Insurance industry's yield of 0.73% and the S&P 500's yield of 1.83%.
In terms of dividend growth, the company's current annualized dividend of $1.46 is up 8.6% from last year. In the past five-year period, Sun Life has increased its dividend 3 times on a year-over-year basis for an average annual increase of 2.67%. 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. Sun Life's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.
SLF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.57 per share, representing a year-over-year earnings growth rate of 11.56%.
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. With that in mind, SLF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).