All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Hanover Insurance Group in Focus
Headquartered in Worcester, Hanover Insurance Group (THG) is a Finance stock that has seen a price change of 2.62% so far this year. Currently paying a dividend of $0.6 per share, the company has a dividend yield of 2%. In comparison, the Insurance - Property and Casualty industry's yield is 1.53%, while the S&P 500's yield is 1.89%.
In terms of dividend growth, the company's current annualized dividend of $2.40 is up 8.1% from last year. Hanover Insurance Group has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.09%. 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. Hanover Insurance's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for THG for this fiscal year. The Zacks Consensus Estimate for 2019 is $8 per share, which represents a year-over-year growth rate of 17.82%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. 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, THG 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 Hanover Insurance Group, Inc. (THG) : Free Stock Analysis Report
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