Back to top

Image: Bigstock

This is Why Principal Financial (PFG) is a Great Dividend Stock

Read MoreHide Full Article

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.

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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Principal Financial in Focus

Based in Des Moines, Principal Financial (PFG - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 19.42%. Currently paying a dividend of $0.54 per share, the company has a dividend yield of 4.09%. In comparison, the Financial - Investment Management industry's yield is 2.98%, while the S&P 500's yield is 1.92%.

In terms of dividend growth, the company's current annualized dividend of $2.16 is up 2.9% from last year. Principal Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12%. 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, Principal Financial's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.

PFG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.56 per share, representing a year-over-year earnings growth rate of 0.54%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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, PFG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Principal Financial Group, Inc. (PFG) - free report >>

Published in