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.
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.
Old Republic International in Focus
Based in Chicago, Old Republic International (ORI) is in the Finance sector, and so far this year, shares have seen a price change of 4.4%. The insurance underwriter is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 3.49% compared to the Insurance - Multi line industry's yield of 1.92% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $0.78 is up 2.6% from last year. In the past five-year period, Old Republic International has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.52%. 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. Old Republic's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ORI expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.75 per share, with earnings expected to increase 57.66% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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 ORI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).