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 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.
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 23.87%. 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 2.23%. This compares to the Diversified Operations industry's yield of 1.31% and the S&P 500's yield of 1.94%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.94 is up 3.7% from last year. United Technologies has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.37%. 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, United Technologies's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UTX for this fiscal year. 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.
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 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).