All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Delta Air Lines in Focus
Delta Air Lines (DAL - Free Report) is headquartered in Atlanta, and is in the Transportation sector. The stock has seen a price change of 8.46% since the start of the year. The airline is paying out a dividend of $0.7 per share at the moment, with a dividend yield of 2.59% compared to the Transportation - Airline industry's yield of 0.24% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $1.40 is up 6.9% from last year. Over the last 5 years, Delta Air Lines has increased its dividend 5 times on a year-over-year basis for an average annual increase of 44.56%. 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. Delta's current payout ratio is 24%. This means it paid out 24% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, DAL expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.70 per share, with earnings expected to increase 18.63% 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.
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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, DAL 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).