Why Prudential (PRU) is a Great Dividend Stock Right Now

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.

Prudential in Focus

Prudential (PRU) is headquartered in Newark, and is in the Finance sector. The stock has seen a price change of 8.04% since the start of the year. The financial services company is currently shelling out a dividend of $1.3 per share, with a dividend yield of 4.64%. This compares to the Insurance - Multi line industry's yield of 2.12% and the S&P 500's yield of 1.59%.

In terms of dividend growth, the company's current annualized dividend of $5.20 is up 4% from last year. Over the last 5 years, Prudential has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.22%. 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. Prudential's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PRU for this fiscal year. The Zacks Consensus Estimate for 2024 is $13.38 per share, which represents a year-over-year growth rate of 15.15%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PRU 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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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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