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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Lincoln National in Focus
Headquartered in Radnor, Lincoln National (LNC - Free Report) is a Finance stock that has seen a price change of 3.63% so far this year. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.78%. In comparison, the Insurance - Life Insurance industry's yield is 0.74%, while the S&P 500's yield is 1.94%.
In terms of dividend growth, the company's current annualized dividend of $1.48 is up 12.1% from last year. Over the last 5 years, Lincoln National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.55%. 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. Lincoln National's current payout ratio is 16%. This means it paid out 16% of its trailing 12-month EPS as dividend.
LNC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $9.30 per share, with earnings expected to increase 9.67% 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. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LNC 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).