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Why Mercury General (MCY) is a Top Dividend Stock for Your Portfolio

Zacks Equity Research
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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.

Mercury General in Focus

Based in Los Angeles, Mercury General (MCY) is in the Finance sector, and so far this year, shares have seen a price change of -3.95%. Currently paying a dividend of $0.63 per share, the company has a dividend yield of 5.05%. In comparison, the Insurance - Property and Casualty industry's yield is 1.62%, while the S&P 500's yield is 1.95%.

In terms of dividend growth, the company's current annualized dividend of $2.51 is up 0.3% from last year. Mercury General has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 0.41%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Mercury General's current payout ratio is 113%, meaning it paid out 113% of its trailing 12-month EPS as dividend.

MCY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.88 per share, representing a year-over-year earnings growth rate of 115.56%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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, MCY 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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