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.
Philip Morris in Focus
Philip Morris (PM - Free Report) is headquartered in New York, and is in the Consumer Staples sector. The stock has seen a price change of 14.93% since the start of the year. The seller of Marlboro and other cigarette brands is paying out a dividend of $1.14 per share at the moment, with a dividend yield of 5.94% compared to the Tobacco industry's yield of 5.43% and the S&P 500's yield of 1.98%.
Looking at dividend growth, the company's current annualized dividend of $4.56 is up 1.6% from last year. In the past five-year period, Philip Morris has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.50%. 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. Philip Morris's current payout ratio is 88%. This means it paid out 88% of its trailing 12-month EPS as dividend.
PM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.31 per share, representing a year-over-year earnings growth rate of 4.12%.
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.
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, PM 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).