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 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.
General Dynamics in Focus
General Dynamics (GD - Free Report) is headquartered in Reston, and is in the Aerospace sector. The stock has seen a price change of -33.07% since the start of the year. Currently paying a dividend of $1.02 per share, the company has a dividend yield of 3.46%. In comparison, the Aerospace - Defense industry's yield is 1.47%, while the S&P 500's yield is 2.67%.
In terms of dividend growth, the company's current annualized dividend of $4.08 is up 2.3% from last year. General Dynamics has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.49%. 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. General Dynamics's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GD for this fiscal year. The Zacks Consensus Estimate for 2020 is $12.74 per share, with earnings expected to increase 6.34% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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, GD 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).