All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Prudential (LON:PRU) in Focus
Prudential (PRU) is headquartered in Newark, and is in the Finance sector. The stock has seen a price change of 24.27% since the start of the year. Currently paying a dividend of $1 per share, the company has a dividend yield of 3.95%. In comparison, the Insurance - Multi line industry's yield is 2.35%, while the S&P 500's yield is 1.9%.
In terms of dividend growth, the company's current annualized dividend of $4 is up 11.1% from last year. Prudential has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.31%. 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, Prudential's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PRU for this fiscal year. The Zacks Consensus Estimate for 2019 is $12.70 per share, which represents a year-over-year growth rate of 8.64%.
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 have to be mindful 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 PRU is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Prudential Financial, Inc. (NYSE:PRU
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Zacks Investment Research