Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Eli Lilly in Focus
Headquartered in Indianapolis, Eli Lilly (LLY) is a Medical stock that has seen a price change of 4.35% so far this year. The drugmaker is paying out a dividend of $0.56 per share at the moment, with a dividend yield of 2.14% compared to the Large Cap Pharmaceuticals industry's yield of 2.77% and the S&P 500's yield of 1.92%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.58 is up 14.7% from last year. In the past five-year period, Eli Lilly has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.08%. 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. Lilly's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
LLY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.59 per share, which represents a year-over-year growth rate of 0.72%.
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. 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, LLY 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).
Eli Lilly and Company (NYSE:LLY
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