Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 14.32%. The insurance and retirement business is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 2.52% compared to the Insurance - Life Insurance industry's yield of 0.7% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's current annualized dividend of $1.48 is up 12.1% from last year. In the past five-year period, Lincoln National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.55%. 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, Lincoln National's payout ratio is 17%, which 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 $9.30 per share, which represents a year-over-year growth rate of 9.67%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).