All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
AllianceBernstein in Focus
Based in New York, AllianceBernstein (AB - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 12.81%. The investment management company is paying out a dividend of $0.62 per share at the moment, with a dividend yield of 8.78% compared to the Financial - Investment Management industry's yield of 2.66% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $2.48 is up 16.4% from last year. In the past five-year period, AllianceBernstein has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.08%. 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. Right now, AllianceBernstein's payout ratio is 108%, which means it paid out 108% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AB expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.62 per share, with earnings expected to increase 13.91% 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AB 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).