Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Bristol-Myers Squibb in Focus
Headquartered in New York, Bristol-Myers Squibb (BMY - Free Report) is a Medical stock that has seen a price change of 4.53% so far this year. The biopharmaceutical company is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 2.68% compared to the Large Cap Pharmaceuticals industry's yield of 2.62% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 9.8% from last year. Over the last 5 years, Bristol-Myers Squibb has increased its dividend 4 times on a year-over-year basis for an average annual increase of 2.39%. 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. Bristol-Myers's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMY expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $6.04 per share, which represents a year-over-year growth rate of 28.78%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, BMY 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).