Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 tha t dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Progressive in Focus
Headquartered in Mayfield Village, Progressive (PGR) is a Finance stock that has seen a price change of 21.96% so far this year. Currently paying a dividend of $2.51 per share, the company has a dividend yield of 3.42%. In comparison, the Insurance - Property and Casualty industry's yield is 1.66%, while the S&P 500's yield is 1.96%.
Looking at dividend growth, the company's current annualized dividend of $2.51 is up 123.1% from last year. Progressive has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 17.12%. 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. Right now, Progressive's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PGR expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.07 per share, with earnings expected to increase 14.71% 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. 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. 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 PGR 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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