Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Progressive in Focus
Headquartered in Mayfield Village, Progressive (PGR) is a Finance stock that has seen a price change of 28.06% so far this year. The insurer is currently shelling out a dividend of $2.61 per share, with a dividend yield of 3.38%. This compares to the Insurance - Property and Casualty industry's yield of 1.51% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $2.61 is up 132% from last year. Progressive has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 22.31%. 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. Right now, Progressive's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PGR for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.07 per share, representing a year-over-year earnings growth rate of 14.71%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PGR 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 Progressive Corporation (PGR) : Free Stock Analysis Report
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