Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Eaton Vance in Focus
Headquartered in Boston, Eaton Vance (EV - Free Report) is a Finance stock that has seen a price change of -38.1% so far this year. The investment manager is currently shelling out a dividend of $0.38 per share, with a dividend yield of 5.19%. This compares to the Financial - Investment Management industry's yield of 3.39% and the S&P 500's yield of 2.51%.
In terms of dividend growth, the company's current annualized dividend of $1.50 is up 5.3% from last year. Eaton Vance has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.94%. 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. Eaton Vance's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
EV is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $3.61 per share, with earnings expected to increase 4.64% 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, EV 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).