Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
HCI Group in Focus
Based in Tampa, HCI Group (HCI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -17.42%. The property and casualty insurance holding company is currently shelling out a dividend of $0.4 per share, with a dividend yield of 3.81%. This compares to the Insurance - Property and Casualty industry's yield of 1.5% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $1.60 is up 8.5% from last year. HCI Group has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 7.92%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. HCI Group's current payout ratio is 53%. This means it paid out 53% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HCI expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.50 per share, with earnings expected to increase 39.32% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, HCI 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).