Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Horace Mann in Focus
Headquartered in Springfield, Horace Mann (HMN - Free Report) is a Finance stock that has seen a price change of -18.74% so far this year. The provider of auto and homeowners' insurance for teachers and other educators is currently shelling out a dividend of $0.3 per share, with a dividend yield of 3.38%. This compares to the Insurance - Multi line industry's yield of 2.77% and the S&P 500's yield of 2%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 4.3% from last year. Over the last 5 years, Horace Mann has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.47%. 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. Horace Mann's current payout ratio is 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.
HMN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.75 per share, representing a year-over-year earnings growth rate of 25%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful 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 HMN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).