Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Lincoln National in Focus
Based in Radnor, Lincoln National (LNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 27.36%. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.26%. In comparison, the Insurance - Life Insurance industry's yield is 0.47%, while the S&P 500's yield is 1.95%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.48 is up 12.1% from last year. Over the last 5 years, Lincoln National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.15%. 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. Lincoln National's current payout ratio is 17%. This means it paid out 17% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LNC for this fiscal year. The Zacks Consensus Estimate for 2019 is $9.29 per share, with earnings expected to increase 9.55% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LNC 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).