Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
General Dynamics in Focus
Headquartered in Falls Church, General Dynamics (GD - Free Report) is an Aerospace stock that has seen a price change of 17.1% so far this year. The defense contractor is currently shelling out a dividend of $1.02 per share, with a dividend yield of 2.22%. This compares to the Aerospace - Defense industry's yield of 0.96% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 12.4% from last year. In the past five-year period, General Dynamics has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.62%. 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. General Dynamics's current payout ratio is 36%. This means it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GD for this fiscal year. The Zacks Consensus Estimate for 2019 is $11.83 per share, with earnings expected to increase 5.44% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. 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, GD 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).