Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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.
Sun Life in Focus
Based in Toronto, Sun Life (SLF) is in the Finance sector, and so far this year, shares have seen a price change of 8.03%. Currently paying a dividend of $0.42 per share, the company has a dividend yield of 3.39%. In comparison, the Insurance - Life Insurance industry's yield is 0.51%, while the S&P 500's yield is 1.75%.
In terms of dividend growth, the company's current annualized dividend of $1.67 is up 5.2% from last year. Over the last 5 years, Sun Life has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.03%. 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. Sun Life's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
SLF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.12 per share, with earnings expected to increase 5.91% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 SLF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).