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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Procter & Gamble in Focus
Procter & Gamble (PG) is headquartered in Cincinnati, and is in the Consumer Staples sector. The stock has seen a price change of -1.39% since the start of the year. The world's largest consumer products maker is currently shelling out a dividend of $0.72 per share, with a dividend yield of 3.16%. This compares to the Soap and Cleaning Materials industry's yield of 2.38% and the S&P 500's yield of 2.2%.
Looking at dividend growth, the company's current annualized dividend of $2.87 is up 3% from last year. Procter & Gamble has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.99%. 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. P&G's current payout ratio is 68%, meaning it paid out 68% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.41 per share, with earnings expected to increase 4.50% 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. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 PG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).