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.
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.
Federated Investors in Focus
Federated Investors (FII - Free Report) is headquartered in Pittsburgh, and is in the Finance sector. The stock has seen a price change of 19.96% since the start of the year. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 3.39%. In comparison, the Financial - Investment Management industry's yield is 2.95%, while the S&P 500's yield is 1.97%.
In terms of dividend growth, the company's current annualized dividend of $1.08 is up 1.9% from last year. In the past five-year period, Federated Investors has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.75%. 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. Federated Investors's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FII expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.48 per share, representing a year-over-year earnings growth rate of 13.76%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. That said, they can take comfort from the fact that FII is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).