Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Unum in Focus
Based in Chattanooga, Unum (UNM) is in the Finance sector, and so far this year, shares have seen a price change of 18.07%. The insurance company is currently shelling out a dividend of $0.26 per share, with a dividend yield of 3%. This compares to the Insurance - Accident and Health industry's yield of 1.12% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $1.04 is up 6.1% from last year. Over the last 5 years, Unum has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.18%. 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. Unum's current payout ratio is 21%, meaning it paid out 21% of its trailing 12-month EPS as dividend.
UNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.50 per share, with earnings expected to increase 5.77% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, UNM 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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