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 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.
Eli Lilly in Focus
Headquartered in Indianapolis, Eli Lilly (LLY) is a Medical stock that has seen a price change of 7.89% so far this year. Currently paying a dividend of $0.64 per share, the company has a dividend yield of 2.09%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.53%, while the S&P 500's yield is 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.96 is up 14.7% from last year. In the past five-year period, Eli Lilly has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.02%. 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. Lilly's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LLY for this fiscal year. The Zacks Consensus Estimate for 2020 is $6.77 per share, which represents a year-over-year growth rate of 12.09%.
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. 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, LLY 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).