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 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.
Sun Life in Focus
Based in Toronto, Sun Life (SLF - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 19.13%. The financial services company is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 3.97% compared to the Insurance - Life Insurance industry's yield of 0.76% and the S&P 500's yield of 1.95%.
In terms of dividend growth, the company's current annualized dividend of $1.57 is up 6.2% from last year. Sun Life has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 5.91%. 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. Sun Life's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SLF for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.81 per share, representing a year-over-year earnings growth rate of 1.60%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SLF 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).