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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.
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
Based in Baltimore, T. Rowe Price (TROW) is in the Finance sector, and so far this year, shares have seen a price change of 24.1%. The financial services firm is paying out a dividend of $1.08 per share at the moment, with a dividend yield of 2.3% compared to the Financial - Investment Management industry's yield of 1.3% and the S&P 500's yield of 1.3%.
Looking at dividend growth, the company's current annualized dividend of $4.32 is up 20% 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 14.75%. 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. T. Rowe's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TROW for this fiscal year. The Zacks Consensus Estimate for 2021 is $12.30 per share, which represents a year-over-year growth rate of 28.39%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TROW 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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T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
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