Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Unum in Focus
Based in Chattanooga, Unum (UNM - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 26.28%. The insurance company is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 2.8% compared to the Insurance - Accident and Health industry's yield of 1.1% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's current annualized dividend of $1.04 is up 6.1% from last year. In the past five-year period, Unum has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.18%. 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. Unum's current payout ratio is 20%. This means it paid out 20% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UNM for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.50 per share, representing a year-over-year earnings growth rate of 5.77%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, UNM 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).