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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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.
General Dynamics in Focus
Based in Falls Church, General Dynamics (GD) is in the Aerospace sector, and so far this year, shares have seen a price change of 19.36%. Currently paying a dividend of $1.02 per share, the company has a dividend yield of 2.17%. In comparison, the Aerospace - Defense industry's yield is 0.95%, while the S&P 500's yield is 1.86%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.08 is up 12.4% from last year. General Dynamics has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.62%. 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. General Dynamics's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GD expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.76 per share, representing a year-over-year earnings growth rate of 4.81%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, GD 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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General Dynamics Corporation (GD) : Free Stock Analysis Report
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