Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Sun Life in Focus
Headquartered in Toronto, Sun Life (SLF - Free Report) is a Finance stock that has seen a price change of -38.97% so far this year. The financial services company is paying out a dividend of $0.42 per share at the moment, with a dividend yield of 5.98% compared to the Insurance - Life Insurance industry's yield of 0.82% and the S&P 500's yield of 2.66%.
Looking at dividend growth, the company's current annualized dividend of $1.66 is up 37.4% from last year. In the past five-year period, Sun Life has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.04%. 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. Sun Life's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
SLF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.02 per share, which represents a year-over-year growth rate of 3.34%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SLF 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).