Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
United Technologies in Focus
United Technologies (UTX) is headquartered in Farmington, and is in the Conglomerates sector. The stock has seen a price change of 27.68% since the start of the year. Currently paying a dividend of $0.74 per share, the company has a dividend yield of 2.16%. In comparison, the Diversified Operations industry's yield is 1.46%, while the S&P 500's yield is 1.88%.
Looking at dividend growth, the company's current annualized dividend of $2.94 is up 3.7% from last year. United Technologies has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.26%. 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, United Technologies's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
UTX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.03 per share, representing a year-over-year earnings growth rate of 5.52%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. That said, they can take comfort from the fact that UTX 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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