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.
Merck in Focus
Based in Kenilworth, Merck (MRK) is in the Medical sector, and so far this year, shares have seen a price change of 8.11%. The pharmaceutical company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.66% compared to the Large Cap Pharmaceuticals industry's yield of 2.77% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 10.6% from last year. In the past five-year period, Merck has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.01%. 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. Merck's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MRK for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.91 per share, with earnings expected to increase 13.21% 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. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MRK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
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