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.
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.
HCI Group in Focus
Headquartered in Tampa, HCI Group (HCI - Free Report) is a Finance stock that has seen a price change of -15.78% so far this year. The property and casualty insurance holding company is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 3.74% compared to the Insurance - Property and Casualty industry's yield of 1.6% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.60 is up 8.5% from last year. Over the last 5 years, HCI Group has increased its dividend 3 times on a year-over-year basis for an average annual increase of 7.45%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. HCI Group's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HCI for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.50 per share, with earnings expected to increase 39.32% 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.
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, HCI 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).