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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.
Arthur J. Gallagher in Focus
Headquartered in Rolling Meadows, Arthur J. Gallagher (AJG) is a Finance stock that has seen a price change of 11.34% so far this year. The insurance and risk-management company is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 2.1% compared to the Insurance - Brokerage industry's yield of 1.62% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.72 is up 4.9% from last year. In the past five-year period, Arthur J. Gallagher has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.38%. 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. Right now, Arthur J. Gallagher's payout ratio is 48%, which means it paid out 48% of its trailing 12-month EPS as dividend.
AJG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.79 per share, which represents a year-over-year growth rate of 9.86%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AJG 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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