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.
Lincoln National in Focus
Based in Radnor, Lincoln National (LNC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 17.46%. The insurance and retirement business is currently shelling out a dividend of $0.37 per share, with a dividend yield of 2.46%. This compares to the Insurance - Life Insurance industry's yield of 0.74% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.48 is up 12.1% from last year. In the past five-year period, Lincoln National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.55%. 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, Lincoln National's payout ratio is 16%, which means it paid out 16% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LNC for this fiscal year. The Zacks Consensus Estimate for 2019 is $9.30 per share, with earnings expected to increase 9.67% 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. 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, LNC 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).