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This is Why Eli Lilly (LLY) is a Great Dividend Stock

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 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 -6.76% since the start of the year. Currently paying a dividend of $0.64 per share, the company has a dividend yield of 2.39%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.75%, while the S&P 500's yield is 1.91%.

Taking a look at the company's dividend growth, its 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 5.54%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Lilly's current payout ratio is 46%, meaning 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 $5.72 per share, which represents a year-over-year growth rate of 3.14%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LLY 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).


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