Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 23.04%. The insurance company is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 2.88% compared to the Insurance - Accident and Health industry's yield of 1.21% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.04 is up 6.1% from last year. Unum has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.18%. 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. Unum's current payout ratio is 20%. This means it paid out 20% of its trailing 12-month EPS as dividend.
UNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.49 per share, with earnings expected to increase 5.58% 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.
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. 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).