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.
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.
Procter & Gamble in Focus
Procter & Gamble (PG) is headquartered in Cincinnati, and is in the Consumer Staples sector. The stock has seen a price change of -0.54% since the start of the year. The world's largest consumer products maker is paying out a dividend of $0.72 per share at the moment, with a dividend yield of 3.14% compared to the Soap and Cleaning Materials industry's yield of 2.34% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $2.87 is up 3% from last year. Procter & Gamble has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.80%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. P&G's current payout ratio is 68%, meaning it paid out 68% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.42 per share, representing a year-over-year earnings growth rate of 4.74%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. 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 PG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Procter & Gamble Company (The) (NYSE:PG): Free Stock Analysis Report
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