Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Allstate in Focus
Based in Northbrook, Allstate (ALL - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 16.56%. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 2.08%. In comparison, the Insurance - Property and Casualty industry's yield is 1.62%, while the S&P 500's yield is 1.9%.
In terms of dividend growth, the company's current annualized dividend of $2 is up 8.7% from last year. Allstate has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.27%. 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. Allstate's current payout ratio is 23%. This means it paid out 23% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ALL for this fiscal year. The Zacks Consensus Estimate for 2019 is $9.26 per share, representing a year-over-year earnings growth rate of 14.75%.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ALL 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).