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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
HP in Focus
HP (HPQ) is headquartered in Palo Alto, and is in the Computer and Technology sector. The stock has seen a price change of 30.34% since the start of the year. The personal computer and printer maker is currently shelling out a dividend of $0.19 per share, with a dividend yield of 2.42%. This compares to the Computer - Mini computers industry's yield of 0.88% and the S&P 500's yield of 1.31%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.78 is up 10.6% from last year. Over the last 5 years, HP has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.95%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, HP's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HPQ for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.30 per share, with earnings expected to increase 44.74% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, HPQ 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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HP Inc. (HPQ) : Free Stock Analysis Report
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