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.
Eli Lilly in Focus
Eli Lilly (LLY - Free Report) is headquartered in Indianapolis, and is in the Medical sector. The stock has seen a price change of -3.74% since the start of the year. The drugmaker is currently shelling out a dividend of $0.64 per share, with a dividend yield of 2.32%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.73% and the S&P 500's yield of 1.89%.
In terms of dividend growth, the company's current annualized dividend of $2.58 is up 14.7% from last year. Eli Lilly has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.89%. 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. Right now, Lilly's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
LLY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.73 per share, with earnings expected to increase 3.24% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LLY 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).