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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
The Hartford in Focus
Based in Hartford, The Hartford (HIG) is in the Finance sector, and so far this year, shares have seen a price change of 27.92%. The insurance and financial services company is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.11%. This compares to the Insurance - Multi line industry's yield of 2.25% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 9.1% from last year. In the past five-year period, The Hartford has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.15%. 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. Right now, The Hartford's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
HIG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.08 per share, representing a year-over-year earnings growth rate of 17.32%.
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. 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, HIG 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 Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
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