Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Eli Lilly in Focus
Headquartered in Indianapolis, Eli Lilly (LLY) is a Medical stock that has seen a price change of 0.25% so far this year. The drugmaker is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.22% compared to the Large Cap Pharmaceuticals industry's yield of 2.98% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.58 is up 14.7% from last year. Eli Lilly has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.06%. 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. Lilly's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, LLY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.66 per share, representing a year-over-year earnings growth rate of 1.98%.
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.
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 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 LLY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Eli Lilly and Company (LLY) : Free Stock Analysis Report
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