Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
T. Rowe Price in Focus
Headquartered in Baltimore, T. Rowe Price (TROW) is a Finance stock that has seen a price change of 18.56% so far this year. The financial services firm is paying out a dividend of $0.76 per share at the moment, with a dividend yield of 2.78% compared to the Financial - Investment Management industry's yield of 2.76% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $3.04 is up 8.6% from last year. T. Rowe Price has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.04%. 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. Right now, T. Rowe's payout ratio is 42%, which 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 $7.65 per share, representing a year-over-year earnings growth rate of 5.23%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TROW presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
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