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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Morgan Stanley in Focus
Headquartered in New York, Morgan Stanley (MS - Free Report) is a Finance stock that has seen a price change of 12.86% so far this year. The investment bank is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 3.13% compared to the Financial - Investment Bank industry's yield of 0.8% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $1.40 is up 27.3% from last year. Over the last 5 years, Morgan Stanley has increased its dividend 4 times on a year-over-year basis for an average annual increase of 27.73%. 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. Right now, Morgan Stanley's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.79 per share, with earnings expected to increase 3.90% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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 MS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).