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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
AbbVie in Focus
Headquartered in North Chicago, AbbVie (ABBV - Free Report) is a Medical stock that has seen a price change of -14.41% so far this year. The drugmaker is paying out a dividend of $1.07 per share at the moment, with a dividend yield of 5.42% compared to the Large Cap Pharmaceuticals industry's yield of 2.74% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $4.28 is up 19.2% from last year. Over the last 5 years, AbbVie has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.92%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, AbbVie's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ABBV for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.68 per share, with earnings expected to increase 9.70% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ABBV 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).