Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.
Travelers in Focus
Headquartered in New York, Travelers (TRV - Free Report) is a Finance stock that has seen a price change of 14.25% so far this year. The insurer is currently shelling out a dividend of $0.77 per share, with a dividend yield of 2.25%. This compares to the Insurance - Property and Casualty industry's yield of 1.62% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $3.08 is up 1.7% from last year. In the past five-year period, Travelers has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.41%. 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. Travelers's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TRV expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.12 per share, which represents a year-over-year growth rate of 24.38%.
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.
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. That said, they can take comfort from the fact that TRV is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).