Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
Bristol-Myers Squibb in Focus
Headquartered in New York, Bristol-Myers Squibb (BMY) is a Medical stock that has seen a price change of 2.24% so far this year. The biopharmaceutical company is currently shelling out a dividend of $0.45 per share, with a dividend yield of 2.74%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.53% and the S&P 500's yield of 1.76%.
In terms of dividend growth, the company's 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%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Bristol-Myers's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
BMY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $6.09 per share, representing a year-over-year earnings growth rate of 29.85%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).