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.
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.
Bristol-Myers Squibb in Focus
Bristol-Myers Squibb (BMY - Free Report) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of -9.83% since the start of the year. The biopharmaceutical company is currently shelling out a dividend of $0.41 per share, with a dividend yield of 3.5%. This compares to the Large Cap Pharmaceuticals industry's yield of 3.04% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.64 is up 2.5% from last year. Bristol-Myers Squibb has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.49%. 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, Bristol-Myers's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.18 per share, representing a year-over-year earnings growth rate of 5.03%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. Income investors must be conscious 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 BMY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).