This is Why Federated Hermes (FHI) is a Great Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Federated Hermes in Focus

Federated Hermes (FHI) is headquartered in Pittsburgh, and is in the Finance sector. The stock has seen a price change of 3.25% since the start of the year. The one of the nation's largest managers of money market funds is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 3.2% compared to the Financial - Investment Management industry's yield of 2.98% and the S&P 500's yield of 1.62%.

In terms of dividend growth, the company's current annualized dividend of $1.12 is up 0.9% from last year. Over the last 5 years, Federated Hermes has increased its dividend 1 times on a year-over-year basis for an average annual increase of 0.70%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Federated Hermes'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, FHI expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $3.76 per share, representing a year-over-year earnings growth rate of 10.59%.

Bottom Line

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FHI is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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Federated Hermes, Inc. (FHI) : Free Stock Analysis Report

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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.

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