Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
T. Rowe Price in Focus
Headquartered in Baltimore, T. Rowe Price (TROW) is a Finance stock that has seen a price change of 12.79% so far this year. The financial services firm is currently shelling out a dividend of $0.76 per share, with a dividend yield of 2.92%. This compares to the Financial - Investment Management industry's yield of 2.95% and the S&P 500's yield of 1.98%.
In terms of dividend growth, the company's current annualized dividend of $3.04 is up 8.6% from last year. In the past five-year period, T. Rowe Price has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.86%. 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. T. Rowe's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
TROW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $7.52 per share, which represents a year-over-year growth rate of 3.44%.
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. Income investors have to be mindful 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 TROW is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
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