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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Bristol-Myers Squibb in Focus
Bristol-Myers Squibb (BMY - Free Report) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of -0.16% since the start of the year. The biopharmaceutical company is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 2.81% compared to the Large Cap Pharmaceuticals industry's yield of 2.56% and the S&P 500's yield of 2.21%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 9.8% from last year. Bristol-Myers Squibb has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.88%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Bristol-Myers's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BMY for this fiscal year. The Zacks Consensus Estimate for 2020 is $6.14 per share, representing a year-over-year earnings growth rate of 30.92%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that BMY is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).