Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
Lincoln National in Focus
Based in Radnor, Lincoln National (LNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -16.76%. The insurance and retirement business is currently shelling out a dividend of $0.33 per share, with a dividend yield of 2.06%. This compares to the Insurance - Life Insurance industry's yield of 0.73% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1.32 is up 13.8% from last year. Lincoln National has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 21.37%. 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, Lincoln National's payout ratio is 17%, which means it paid out 17% of its trailing 12-month EPS as dividend.
LNC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $8.39 per share, which represents a year-over-year growth rate of 7.70%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LNC 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).