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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
BlackRock in Focus
Based in New York, BlackRock (BLK) is in the Finance sector, and so far this year, shares have seen a price change of -1.47%. Currently paying a dividend of $3.3 per share, the company has a dividend yield of 2.93%. In comparison, the Financial - Investment Management industry's yield is 2.78%, while the S&P 500's yield is 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $14.52 is up 10% from last year. In the past five-year period, BlackRock has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.28%. 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. BlackRock's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BLK for this fiscal year. The Zacks Consensus Estimate for 2020 is $31.76 per share, representing a year-over-year earnings growth rate of 11.52%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, BLK presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).