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Erie Indemnity (ERIE) is a Top Dividend Stock Right Now: Should You Buy?

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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.

Erie Indemnity in Focus

Headquartered in Erie, Erie Indemnity (ERIE - Free Report) is a Finance stock that has seen a price change of 10.86% so far this year. The insurance company is paying out a dividend of $0.96 per share at the moment, with a dividend yield of 2.1% compared to the Insurance - Brokerage industry's yield of 1.53% and the S&P 500's yield of 2.07%.

In terms of dividend growth, the company's current annualized dividend of $3.86 is up 7.2% from last year. Erie Indemnity has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.95%. 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. Erie Indemnity's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ERIE for this fiscal year. The Zacks Consensus Estimate for 2020 is $6.43 per share, with earnings expected to increase 6.11% from the year ago period.

Bottom Line

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.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious 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 ERIE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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