Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Arthur J. Gallagher in Focus
Arthur J. Gallagher (AJG - Free Report) is headquartered in Rolling Meadows, and is in the Finance sector. The stock has seen a price change of 13.26% since the start of the year. The insurance and risk-management company is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 2.06% compared to the Insurance - Brokerage industry's yield of 1.61% and the S&P 500's yield of 1.95%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.72 is up 4.9% from last year. Over the last 5 years, Arthur J. Gallagher has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.38%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Arthur J. Gallagher's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
AJG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.74 per share, representing a year-over-year earnings growth rate of 8.41%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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, AJG 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).