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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Virtus Investment Partners in Focus
Based in Hartford, Virtus Investment Partners (VRTS - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -23.87%. Currently paying a dividend of $0.67 per share, the company has a dividend yield of 2.89%. In comparison, the Financial - Investment Management industry's yield is 3.06%, while the S&P 500's yield is 2.31%.
In terms of dividend growth, the company's current annualized dividend of $2.68 is up 15.5% from last year. In the past five-year period, Virtus Investment Partners has increased its dividend 2 times on a year-over-year basis for an average annual increase of 5.82%. 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. Right now, Virtus's payout ratio is 18%, which means it paid out 18% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, VRTS expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $16.90 per share, with earnings expected to increase 14.19% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that VRTS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).