Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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 tha t 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) is headquartered in Falls Church, and is in the Aerospace sector. The stock has seen a price change of 6.69% since the start of the year. The defense contractor is currently shelling out a dividend of $1.02 per share, with a dividend yield of 2.43%. This compares to the Aerospace - Defense industry's yield of 0.97% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 12.4% from last year. Over the last 5 years, General Dynamics has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.18%. 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. General Dynamics's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GD expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.74 per share, with earnings expected to increase 4.63% 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. However, not all companies offer 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 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 GD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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