Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Prudential in Focus
Prudential (PRU - Free Report) is headquartered in Newark, and is in the Finance sector. The stock has seen a price change of 22.13% since the start of the year. The financial services company is currently shelling out a dividend of $1 per share, with a dividend yield of 4.02%. This compares to the Insurance - Multi line industry's yield of 2.25% and the S&P 500's yield of 1.91%.
Looking at dividend growth, the company's current annualized dividend of $4 is up 11.1% from last year. In the past five-year period, Prudential has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.31%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Prudential's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PRU for this fiscal year. The Zacks Consensus Estimate for 2019 is $12.74 per share, which represents a year-over-year growth rate of 8.98%.
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.
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, PRU 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).