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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
T. Rowe Price in Focus
Based in Baltimore, T. Rowe Price (TROW - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 12.05%. Currently paying a dividend of $0.76 per share, the company has a dividend yield of 2.94%. In comparison, the Financial - Investment Management industry's yield is 3.22%, while the S&P 500's yield is 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.04 is up 8.6% from last year. T. Rowe Price has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.86%. 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. T. Rowe's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TROW for this fiscal year. The Zacks Consensus Estimate for 2019 is $7.52 per share, representing a year-over-year earnings growth rate of 3.44%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful 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 TROW is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).