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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Eli Lilly in Focus
Eli Lilly (LLY) is headquartered in Indianapolis, and is in the Medical sector. The stock has seen a price change of 1.14% since the start of the year. The drugmaker is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.2% compared to the Large Cap Pharmaceuticals industry's yield of 2.98% and the S&P 500's yield of 1.86%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.58 is up 14.7% from last year. Over the last 5 years, Eli Lilly has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.06%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lilly's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
LLY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.67 per share, which represents a year-over-year growth rate of 2.16%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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, LLY presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Eli Lilly and Company (LLY) : Free Stock Analysis Report
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