Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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.
Federated Investors in Focus
Headquartered in Pittsburgh, Federated Investors (FII - Free Report) is a Finance stock that has seen a price change of -5.5% so far this year. The one of the nation's largest managers of money market funds is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 4.3% compared to the Financial - Investment Management industry's yield of 3.17% and the S&P 500's yield of 2%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 1.9% from last year. In the past five-year period, Federated Investors has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.19%. 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. Federated Investors's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FII expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.30 per share, representing a year-over-year earnings growth rate of 5.50%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, FII is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).