Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Lincoln National in Focus
Based in Radnor, Lincoln National (LNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 28.88%. The insurance and retirement business is currently shelling out a dividend of $0.37 per share, with a dividend yield of 2.24%. This compares to the Insurance - Life Insurance industry's yield of 0.71% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.48 is up 12.1% from last year. Lincoln National has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 18.55%. 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. Lincoln National's current payout ratio is 17%. This means it paid out 17% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, LNC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $9.27 per share, representing a year-over-year earnings growth rate of 9.32%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LNC 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).