All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Federated Investors in Focus
Headquartered in Pittsburgh, Federated Investors (FII - Free Report) is a Finance stock that has seen a price change of 25.57% so far this year. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 3.24%. In comparison, the Financial - Investment Management industry's yield is 2.8%, while the S&P 500's yield is 1.87%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 1.9% from last year. In the past five-year period, Federated Investors has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.75%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 $2.44 per share, with earnings expected to increase 11.93% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 FII is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).