All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Principal Financial in Focus
Principal Financial (PFG - Free Report) is headquartered in Des Moines, and is in the Finance sector. The stock has seen a price change of 24.93% since the start of the year. The financial services company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 3.99% compared to the Financial - Investment Management industry's yield of 2.82% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 4.8% from last year. Principal Financial has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.52%. 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, Principal Financial's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PFG for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.86 per share, which represents a year-over-year growth rate of 5.97%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that PFG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).