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This is Why Legg Mason (LM) is a Great Dividend Stock

Zacks Equity Research

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

Legg Mason in Focus

Headquartered in Baltimore, Legg Mason (LM) is a Finance stock that has seen a price change of 47.86% so far this year. Currently paying a dividend of $0.4 per share, the company has a dividend yield of 4.24%. In comparison, the Financial - Investment Management industry's yield is 2.76%, while the S&P 500's yield is 1.89%.

In terms of dividend growth, the company's current annualized dividend of $1.60 is up 17.6% from last year. Legg Mason has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 19.23%. 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. Legg Mason's current payout ratio is 45%. This means it paid out 45% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, LM expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.28 per share, representing a year-over-year earnings growth rate of 963.16%.

Bottom Line

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.

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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that LM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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