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.
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.
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 18.28%. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 3.01%. In comparison, the Insurance - Accident and Health industry's yield is 2.66%, while the S&P 500's yield is 1.7%.
Looking at dividend growth, the company's current annualized dividend of $1.46 is up 15.9% from last year. Unum has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.21%. 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 19%, meaning it paid out 19% of its trailing 12-month EPS as dividend.
UNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $7.73 per share, with earnings expected to increase 24.48% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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