All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
The Hartford in Focus
Based in Hartford, The Hartford (HIG - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 23.67%. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 2.18%. In comparison, the Insurance - Multi line industry's yield is 2.44%, while the S&P 500's yield is 1.96%.
Looking at dividend growth, the company's current annualized dividend of $1.20 is up 9.1% from last year. Over the last 5 years, The Hartford has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.93%. 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, The Hartford's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HIG for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.12 per share, which represents a year-over-year growth rate of 18.24%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, HIG 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).