Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Aflac in Focus
Headquartered in Columbus, Aflac (AFL - Free Report) is a Finance stock that has seen a price change of 13.19% so far this year. The insurer is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 2.09% compared to the Insurance - Accident and Health industry's yield of 1.22% and the S&P 500's yield of 2.03%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 3.8% from last year. In the past five-year period, Aflac has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.21%. 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. Right now, Aflac's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AFL expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.30 per share, which represents a year-over-year growth rate of 3.37%.
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.
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 must be conscious 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 AFL is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).