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.
Johnson & Johnson in Focus
Headquartered in New Brunswick, Johnson & Johnson (JNJ - Free Report) is a Medical stock that has seen a price change of -14.03% so far this year. Currently paying a dividend of $0.95 per share, the company has a dividend yield of 3.03%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.98%, while the S&P 500's yield is 2.51%.
In terms of dividend growth, the company's current annualized dividend of $3.80 is up 1.3% from last year. Over the last 5 years, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.21%. 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, Johnson & Johnson's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for JNJ for this fiscal year. The Zacks Consensus Estimate for 2020 is $9.03 per share, with earnings expected to increase 4.03% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. With that in mind, JNJ 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).