All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 tha t dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Allstate in Focus
Headquartered in Northbrook, Allstate (ALL) is a Finance stock that has seen a price change of 13.76% so far this year. Currently paying a dividend of $0.46 per share, the company has a dividend yield of 2.13%. In comparison, the Insurance - Property and Casualty industry's yield is 1.6%, while the S&P 500's yield is 1.93%.
Looking at dividend growth, the company's current annualized dividend of $2 is up 8.7% from last year. Allstate has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.27%. 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. Allstate's current payout ratio is 23%, meaning it paid out 23% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ALL for this fiscal year. The Zacks Consensus Estimate for 2019 is $9.28 per share, representing a year-over-year earnings growth rate of 15.01%.
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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ALL presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).