All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Everest Re in Focus
Everest Re (RE - Free Report) is headquartered in Hamilton, and is in the Finance sector. The stock has seen a price change of 14.56% since the start of the year. The reinsurance company is paying out a dividend of $1.4 per share at the moment, with a dividend yield of 2.24% compared to the Insurance - Property and Casualty industry's yield of 1.04% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $5.60 is up 5.7% from last year. In the past five-year period, Everest Re has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.03%. 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. Everest Re's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
RE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $23.53 per share, representing a year-over-year earnings growth rate of 406.02%.
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.
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. 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, RE 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).