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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
JPMorgan Chase in Focus
Based in New York, JPMorgan Chase (JPM) is in the Finance sector, and so far this year, shares have seen a price change of 17.47%. The biggest U.S. bank by assets is currently shelling out a dividend of $0.8 per share, with a dividend yield of 2.79%. This compares to the Banks - Major Regional industry's yield of 2.77% and the S&P 500's yield of 1.87%.
In terms of dividend growth, the company's current annualized dividend of $3.20 is up 29% from last year. Over the last 5 years, JPMorgan Chase has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.18%. 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. JP Morgan's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.
JPM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $9.94 per share, which represents a year-over-year growth rate of 10.44%.
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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, JPM 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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