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Why Sun Life (SLF) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Sun Life in Focus

Sun Life (SLF) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of -2.81% since the start of the year. The financial services company is paying out a dividend of $0.42 per share at the moment, with a dividend yield of 3.75% compared to the Insurance - Life Insurance industry's yield of 0.53% and the S&P 500's yield of 1.98%.

Looking at dividend growth, the company's current annualized dividend of $1.66 is up 37.4% from last year. Sun Life has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.04%. 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 43%, meaning it paid out 43% 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 $4.15 per share, representing a year-over-year earnings growth rate of 6.68%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).

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