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 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
Bristol-Myers Squibb (BMY) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of -9.75% since the start of the year. Currently paying a dividend of $0.45 per share, the company has a dividend yield of 3.11%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.98%, while the S&P 500's yield is 2.18%.
In terms of dividend growth, the company's current annualized dividend of $1.80 is up 9.8% from last year. In the past five-year period, 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. Right now, Bristol-Myers's payout ratio is 35%, which 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 $6.13 per share, which represents a year-over-year growth rate of 30.70%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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, 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).