All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Primerica in Focus
Headquartered in Duluth, Primerica (PRI) is a Finance stock that has seen a price change of -43.48% so far this year. The life insurance and financial products company is currently shelling out a dividend of $0.4 per share, with a dividend yield of 2.17%. This compares to the Insurance - Life Insurance industry's yield of 0.82% and the S&P 500's yield of 2.66%.
In terms of dividend growth, the company's current annualized dividend of $1.60 is up 17.6% from last year. In the past five-year period, Primerica has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.81%. 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, Primerica's payout ratio is 16%, which means it paid out 16% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PRI for this fiscal year. The Zacks Consensus Estimate for 2020 is $9.48 per share, with earnings expected to increase 12.46% 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. However, not all companies offer 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. That said, they can take comfort from the fact that PRI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).