Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Sun Life in Focus
Headquartered in Toronto, Sun Life (SLF - Free Report) is a Finance stock that has seen a price change of -4.94% so far this year. The financial services company is currently shelling out a dividend of $0.37 per share, with a dividend yield of 3.72%. This compares to the Insurance - Life Insurance industry's yield of 0.73% and the S&P 500's yield of 1.83%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.46 is up 8.6% from last year. Sun Life has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 2.67%. 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. Right now, Sun Life's payout ratio is 41%, which means it paid out 41% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SLF expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.57 per share, with earnings expected to increase 11.56% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 SLF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).