Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Bristol-Myers Squibb in Focus
Headquartered in New York, Bristol-Myers Squibb (BMY - Free Report) is a Medical stock that has seen a price change of 3.5% so far this year. The biopharmaceutical company is paying out a dividend of $0.41 per share at the moment, with a dividend yield of 3.05% compared to the Large Cap Pharmaceuticals industry's yield of 2.74% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.64 is up 2.5% from last year. In the past five-year period, Bristol-Myers Squibb has increased its dividend 4 times on a year-over-year basis for an average annual increase of 2.42%. 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. Bristol-Myers's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BMY for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.15 per share, representing a year-over-year earnings growth rate of 4.27%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 have to be mindful 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 BMY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).