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This is Why Unum (UNM) is a Great Dividend Stock

Zacks Equity Research
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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.

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.

Unum in Focus

Headquartered in Chattanooga, Unum (UNM) is a Finance stock that has seen a price change of -26.71% so far this year. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 2.59%. In comparison, the Insurance - Accident and Health industry's yield is 1.12%, while the S&P 500's yield is 1.81%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.04 is up 20.9% from last year. Over the last 5 years, Unum has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.95%. 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, Unum's payout ratio is 19%, which means it paid out 19% of its trailing 12-month EPS as dividend.

UNM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.11 per share, which represents a year-over-year growth rate of 19.11%.

Bottom Line

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.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 UNM 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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