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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Federated Investors in Focus
Federated Investors (FII - Free Report) is headquartered in Pittsburgh, and is in the Finance sector. The stock has seen a price change of 25.27% since the start of the year. The one of the nation's largest managers of money market funds is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 3.25% compared to the Financial - Investment Management industry's yield of 2.87% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its 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%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Federated Investors's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FII expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.49 per share, which represents a year-over-year growth rate of 14.22%.
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 have to be mindful 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 is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).