All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Allstate in Focus
Headquartered in Northbrook, Allstate (ALL - Free Report) is a Finance stock that has seen a price change of 20.4% so far this year. The insurer is currently shelling out a dividend of $0.5 per share, with a dividend yield of 2.01%. This compares to the Insurance - Property and Casualty industry's yield of 1.32% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $2 is up 8.7% from last year. Over the last 5 years, Allstate has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.27%. 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. Allstate's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
ALL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.87 per share, which represents a year-over-year growth rate of 9.91%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ALL 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).