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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Johnson & Johnson in Focus
Based in New Brunswick, Johnson & Johnson (JNJ) is in the Medical sector, and so far this year, shares have seen a price change of 4.13%. The world's biggest maker of health care products is paying out a dividend of $0.95 per share at the moment, with a dividend yield of 2.5% compared to the Large Cap Pharmaceuticals industry's yield of 2.62% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $3.80 is up 1.3% from last year. Johnson & Johnson has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.21%. 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. Johnson & Johnson's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
JNJ is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $9.03 per share, with earnings expected to increase 4.03% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, JNJ 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).