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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
T. Rowe Price in Focus
Based in Baltimore, T. Rowe Price (TROW) is in the Finance sector, and so far this year, shares have seen a price change of 28.46%. Currently paying a dividend of $1.08 per share, the company has a dividend yield of 2.22%. In comparison, the Financial - Investment Management industry's yield is 1.43%, while the S&P 500's yield is 1.29%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.32 is up 20% from last year. In the past five-year period, T. Rowe Price has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.75%. 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. T. Rowe's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TROW for this fiscal year. The Zacks Consensus Estimate for 2021 is $12.31 per share, representing a year-over-year earnings growth rate of 28.50%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TROW 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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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
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