Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
AbbVie in Focus
AbbVie (ABBV - Free Report) is headquartered in North Chicago, and is in the Medical sector. The stock has seen a price change of 9.54% since the start of the year. The drugmaker is currently shelling out a dividend of $1.18 per share, with a dividend yield of 4.87%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.76% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $4.72 is up 10.3% from last year. In the past five-year period, AbbVie has increased its dividend 5 times on a year-over-year basis for an average annual increase of 21.75%. 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. AbbVie's current payout ratio is 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ABBV for this fiscal year. The Zacks Consensus Estimate for 2020 is $10.54 per share, with earnings expected to increase 17.90% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. With that in mind, ABBV presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).