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.
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.
Procter & Gamble in Focus
Procter & Gamble (PG) is headquartered in Cincinnati, and is in the Consumer Staples sector. The stock has seen a price change of -1.16% since the start of the year. The world's largest consumer products maker is paying out a dividend of $0.75 per share at the moment, with a dividend yield of 2.42% compared to the Soap and Cleaning Materials industry's yield of 2.26% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.98 is up 2.9% from last year. Procter & Gamble has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.99%. 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. P&G's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PG for this fiscal year. The Zacks Consensus Estimate for 2020 is $4.99 per share, representing a year-over-year earnings growth rate of 10.40%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. That said, they can take comfort from the fact that PG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).