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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
General Dynamics in Focus
General Dynamics (GD - Free Report) is headquartered in Falls Church, and is in the Aerospace sector. The stock has seen a price change of 16.63% since the start of the year. The defense contractor is currently shelling out a dividend of $1.02 per share, with a dividend yield of 2.23%. This compares to the Aerospace - Defense industry's yield of 0.98% and the S&P 500's yield of 1.98%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.08 is up 12.4% from last year. In the past five-year period, General Dynamics has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.62%. 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. General Dynamics's current payout ratio is 36%. This means it paid out 36% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GD for this fiscal year. The Zacks Consensus Estimate for 2019 is $11.86 per share, which represents a year-over-year growth rate of 5.70%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, GD 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).