All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.
Progressive in Focus
Progressive (PGR - Free Report) is headquartered in Mayfield Village, and is in the Finance sector. The stock has seen a price change of 20.14% since the start of the year. The insurer is currently shelling out a dividend of $2.51 per share, with a dividend yield of 3.47%. This compares to the Insurance - Property and Casualty industry's yield of 1.62% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.51 is up 123.1% from last year. Progressive has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 17.12%. 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. Progressive's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
PGR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.05 per share, with earnings expected to increase 14.25% 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. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 PGR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).