Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
AbbVie in Focus
AbbVie (ABBV - Free Report) is headquartered in North Chicago, and is in the Medical sector. The stock has seen a price change of -14.92% since the start of the year. Currently paying a dividend of $1.07 per share, the company has a dividend yield of 5.46%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.98%, while the S&P 500's yield is 1.96%.
Looking at dividend growth, the company's current annualized dividend of $4.28 is up 19.2% from last year. Over the last 5 years, AbbVie has increased its dividend 5 times on a year-over-year basis for an average annual increase of 20.20%. 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. Right now, AbbVie's payout ratio is 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ABBV for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.81 per share, which represents a year-over-year growth rate of 11.38%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, ABBV 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).