Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Morgan Stanley in Focus
Headquartered in New York, Morgan Stanley (MS - Free Report) is a Finance stock that has seen a price change of 7.69% so far this year. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 2.81%. In comparison, the Financial - Investment Bank industry's yield is 0.72%, while the S&P 500's yield is 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 9.1% from last year. Morgan Stanley has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 28.75%. 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. Morgan Stanley's current payout ratio is 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.
MS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.92 per share, which represents a year-over-year growth rate of 6.72%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that MS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).