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Why Legg Mason (LM) is a Top Dividend Stock for Your Portfolio

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.

Legg Mason in Focus

Legg Mason is headquartered in Baltimore, and is in the Finance sector. The stock has seen a price change of 55.86% since the start of the year. The money manager is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 4.02% compared to the Financial - Investment Management industry's yield of 2.79% and the S&P 500's yield of 1.88%.

In terms of dividend growth, the company's current annualized dividend of $1.60 is up 17.6% from last year. Over the last 5 years, Legg Mason has increased its dividend 4 times on a year-over-year basis for an average annual increase of 19.23%. 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. Legg Mason's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.

LM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.63 per share, representing a year-over-year earnings growth rate of 19.41%.

Bottom Line

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.

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. 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, LM 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).

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