All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Johnson & Johnson in Focus
Headquartered in New Brunswick, Johnson & Johnson (JNJ - Free Report) is a Medical stock that has seen a price change of -0.53% so far this year. The world's biggest maker of health care products is paying out a dividend of $0.95 per share at the moment, with a dividend yield of 2.96% compared to the Large Cap Pharmaceuticals industry's yield of 2.84% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $3.80 is up 7.3% from last year. In the past five-year period, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.34%. 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. Johnson & Johnson's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, JNJ expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.60 per share, representing a year-over-year earnings growth rate of 5.13%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, JNJ 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).