Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Principal Financial in Focus
Headquartered in Des Moines, Principal Financial (PFG) is a Finance stock that has seen a price change of 18.88% so far this year. Currently paying a dividend of $0.54 per share, the company has a dividend yield of 4.11%. In comparison, the Financial - Investment Management industry's yield is 3%, while the S&P 500's yield is 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.16 is up 2.9% from last year. In the past five-year period, Principal Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.52%. 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. Principal Financial's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PFG for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.86 per share, representing a year-over-year earnings growth rate of 5.97%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that PFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Principal Financial Group, Inc. (PFG) : Free Stock Analysis Report
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