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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
The Hartford in Focus
Headquartered in Hartford, The Hartford (HIG - Free Report) is a Finance stock that has seen a price change of 31.29% so far this year. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 2.06%. In comparison, the Insurance - Multi line industry's yield is 2.17%, while the S&P 500's yield is 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 9.1% from last year. Over the last 5 years, The Hartford has increased its dividend 3 times on a year-over-year basis for an average annual increase of 12.20%. 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, The Hartford's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
HIG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.30 per share, which represents a year-over-year growth rate of 22.40%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 HIG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).