Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
T. Rowe Price in Focus
T. Rowe Price (TROW) is headquartered in Baltimore, and is in the Finance sector. The stock has seen a price change of 34.72% since the start of the year. Currently paying a dividend of $4.08 per share, the company has a dividend yield of 2.12%. In comparison, the Financial - Investment Management industry's yield is 1.55%, while the S&P 500's yield is 1.36%.
In terms of dividend growth, the company's current annualized dividend of $4.32 is up 20% from last year. In the past five-year period, T. Rowe Price has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.60%. 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. Right now, T. Rowe's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TROW expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $12.71 per share, which represents a year-over-year growth rate of 32.67%.
Bottom Line
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.
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 TROW 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
