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.
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.
General Dynamics in Focus
Headquartered in Falls Church, General Dynamics (GD) is an Aerospace stock that has seen a price change of 12.51% so far this year. Currently paying a dividend of $1.02 per share, the company has a dividend yield of 2.31%. In comparison, the Aerospace - Defense industry's yield is 0.97%, while the S&P 500's yield is 1.9%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 12.4% 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 10.18%. 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. General Dynamics's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GD expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.73 per share, representing a year-over-year earnings growth rate of 4.55%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. That said, they can take comfort from the fact that GD is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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