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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
United Technologies in Focus
Based in Farmington, United Technologies (UTX - Free Report) is in the Conglomerates sector, and so far this year, shares have seen a price change of 18.93%. The maker of elevators, jet engines and other products is currently shelling out a dividend of $0.74 per share, with a dividend yield of 2.32%. This compares to the Diversified Operations industry's yield of 1.39% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.94 is up 3.7% from last year. Over the last 5 years, United Technologies has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.34%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. United Technologies's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, UTX expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.93 per share, with earnings expected to increase 4.20% 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. 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 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 UTX is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).