All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Unum in Focus
Headquartered in Chattanooga, Unum (UNM - Free Report) is a Finance stock that has seen a price change of 16.41% so far this year. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 3.04%. In comparison, the Insurance - Accident and Health industry's yield is 1.68%, while the S&P 500's yield is 1.94%.
In terms of dividend growth, the company's 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 12.02%. 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. Right now, Unum's payout ratio is 20%, which means it paid out 20% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UNM for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.48 per share, which represents a year-over-year growth rate of 5.38%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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).