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 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.
Aflac in Focus
Based in Columbus, Aflac (AFL - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 13.89%. The insurer is currently shelling out a dividend of $0.27 per share, with a dividend yield of 2.08%. This compares to the Insurance - Accident and Health industry's yield of 1.14% and the S&P 500's yield of 1.91%.
Looking at dividend growth, the company's current annualized dividend of $1.08 is up 3.8% from last year. Over the last 5 years, Aflac has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.49%. 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. Aflac's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AFL expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.34 per share, representing a year-over-year earnings growth rate of 4.33%.
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, AFL 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).