Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Johnson & Johnson in Focus
Johnson & Johnson (JNJ - Free Report) is headquartered in New Brunswick, and is in the Medical sector. The stock has seen a price change of 2.32% since the start of the year. The world's biggest maker of health care products is paying out a dividend of $0.95 per share at the moment, with a dividend yield of 2.88% compared to the Large Cap Pharmaceuticals industry's yield of 3.1% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.80 is up 7.3% from last year. Johnson & Johnson has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.34%. 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. Johnson & Johnson's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, JNJ expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.60 per share, with earnings expected to increase 5.13% 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.
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. With that in mind, JNJ 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).