Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
United Technologies in Focus
United Technologies (UTX - Free Report) is headquartered in Connecticut, and is in the Conglomerates sector. The stock has seen a price change of 19.14% since the start of the year. Currently paying a dividend of $0.74 per share, the company has a dividend yield of 2.32%. In comparison, the Diversified Operations industry's yield is 1.59%, while the S&P 500's yield is 2.04%.
In terms of dividend growth, the company's current annualized dividend of $2.94 is up 3.7% from last year. United Technologies has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.37%. 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, United Technologies's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UTX for this fiscal year. The Zacks Consensus Estimate for 2019 is $7.97 per share, which represents a year-over-year growth rate of 4.73%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. With that in mind, UTX 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).