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 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.
General Dynamics in Focus
General Dynamics (GD) is headquartered in Reston, and is in the Aerospace sector. The stock has seen a price change of -25.33% since the start of the year. The defense contractor is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.34%. This compares to the Aerospace - Defense industry's yield of 0.83% and the S&P 500's yield of 2.28%.
Looking at dividend growth, the company's current annualized dividend of $4.40 is up 10.3% from last year. In the past five-year period, General Dynamics has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.93%. 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. General Dynamics's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GD expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $12.20 per share, representing a year-over-year earnings growth rate of 1.84%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, GD 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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General Dynamics Corporation (GD) : Free Stock Analysis Report
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