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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
Federated Investors in Focus
Federated Investors (FII - Free Report) is headquartered in Pittsburgh, and is in the Finance sector. The stock has seen a price change of 9.49% since the start of the year. The one of the nation's largest managers of money market funds is currently shelling out a dividend of $0.27 per share, with a dividend yield of 3.72%. This compares to the Financial - Investment Management industry's yield of 3.35% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 1.9% from last year. Over the last 5 years, Federated Investors has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.19%. 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. Federated Investors's current payout ratio is 45%. This means it paid out 45% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FII expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.41 per share, representing a year-over-year earnings growth rate of 10.55%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FII 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).