Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Federated Investors in Focus
Headquartered in Pittsburgh, Federated Investors (FII - Free Report) is a Finance stock that has seen a price change of 25.35% so far this year. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 3.25%. In comparison, the Financial - Investment Management industry's yield is 2.81%, while the S&P 500's yield is 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.08 is up 1.9% from last year. Federated Investors has increased its dividend 1 times on a year-over-year basis over the last 5 years for an average annual increase of 1.75%. 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. Right now, Federated Investors's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FII for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.40 per share, which represents a year-over-year growth rate of 10.09%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, FII 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).