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Principal Financial (PFG) is a Top Dividend Stock Right Now: Should You Buy?

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Principal Financial in Focus

Principal Financial (PFG - Free Report) is headquartered in Des Moines, and is in the Finance sector. The stock has seen a price change of 19.72% since the start of the year. The financial services company is currently shelling out a dividend of $0.54 per share, with a dividend yield of 4.08%. This compares to the Financial - Investment Management industry's yield of 2.94% and the S&P 500's yield of 1.95%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.16 is up 2.9% from last year. Over the last 5 years, Principal Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.52%. 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, Principal Financial's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PFG for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.86 per share, with earnings expected to increase 5.97% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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, PFG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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