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Why Unum (UNM) is a Great Dividend Stock Right Now

Zacks Equity Research
·2 mins read

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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

Unum (UNM) is headquartered in Chattanooga, and is in the Finance sector. The stock has seen a price change of -50.21% since the start of the year. The insurance company is currently shelling out a dividend of $0.28 per share, with a dividend yield of 7.85%. This compares to the Insurance - Accident and Health industry's yield of 1.27% and the S&P 500's yield of 2.26%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.14 is up 4.6% from last year. Unum has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.01%. 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. Unum's current payout ratio is 21%, meaning it paid out 21% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, UNM expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $5.63 per share, which represents a year-over-year growth rate of 3.68%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, UNM 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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