All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Federated Investors in Focus
Based in Pittsburgh, Federated Investors (FII) is in the Finance sector, and so far this year, shares have seen a price change of 21.81%. The one of the nation's largest managers of money market funds is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 3.34% compared to the Financial - Investment Management industry's yield of 2.82% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $1.08 is up 1.9% from last year. Over the last 5 years, Federated Investors has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.75%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Federated Investors's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, FII expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.48 per share, representing a year-over-year earnings growth rate of 13.76%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, FII 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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