Why Novo Nordisk (NVO) is a Great Dividend Stock Right Now
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Novo Nordisk in Focus
Headquartered in Bagsvaerd, Novo Nordisk (NVO) is a Medical stock that has seen a price change of -2.03% so far this year. The drugmaker is paying out a dividend of $0.68 per share at the moment, with a dividend yield of 2% compared to the Large Cap Pharmaceuticals industry's yield of 2.41% and the S&P 500's yield of 1.34%.
In terms of dividend growth, the company's current annualized dividend of $1.37 is up 47.5% from last year. Novo Nordisk has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 0.54%. 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. Right now, Novo Nordisk's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
NVO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $3.08 per share, which represents a year-over-year growth rate of 11.59%.
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.
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. With that in mind, NVO 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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