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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Bristol-Myers Squibb in Focus
Based in New York, Bristol-Myers Squibb (BMY - Free Report) is in the Medical sector, and so far this year, shares have seen a price change of -8.71%. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 3.46%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.88%, while the S&P 500's yield is 1.94%.
Looking at dividend growth, the company's current annualized dividend of $1.64 is up 2.5% from last year. In the past five-year period, Bristol-Myers Squibb has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.49%. 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. Bristol-Myers's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.18 per share, with earnings expected to increase 5.03% from the year ago period.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 BMY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).