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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Johnson & Johnson in Focus
Johnson & Johnson (JNJ - Free Report) is headquartered in New Brunswick, and is in the Medical sector. The stock has seen a price change of 3.63% since the start of the year. The world's biggest maker of health care products is currently shelling out a dividend of $0.95 per share, with a dividend yield of 2.84%. This compares to the Large Cap Pharmaceuticals industry's yield of 3.07% and the S&P 500's yield of 2.02%.
Looking at dividend growth, the company's current annualized dividend of $3.80 is up 7.3% from last year. Over the last 5 years, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.11%. 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, Johnson & Johnson's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for JNJ for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.60 per share, with earnings expected to increase 5.13% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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, JNJ 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).