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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Arthur J. Gallagher in Focus
Headquartered in Rolling Meadows, Arthur J. Gallagher (AJG) is a Finance stock that has seen a price change of 16.74% so far this year. The insurance and risk-management company is currently shelling out a dividend of $0.43 per share, with a dividend yield of 2%. This compares to the Insurance - Brokerage industry's yield of 1.57% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $1.72 is up 4.9% from last year. In the past five-year period, Arthur J. Gallagher has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.38%. 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. Arthur J. Gallagher's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
AJG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.68 per share, which represents a year-over-year growth rate of 6.67%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. With that in mind, AJG 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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Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
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