Why Prudential (PRU) Is A Top Dividend Stock For Your Portfolio

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 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.

Prudential (LON:PRU) in Focus

Based in Newark, Prudential (PRU) is in the Finance sector, and so far this year, shares have seen a price change of 21.78%. Currently paying a dividend of $1 per share, the company has a dividend yield of 4.03%. In comparison, the Insurance - Multi line industry's yield is 2.42%, while the S&P 500's yield is 1.98%.

Looking at dividend growth, the company's current annualized dividend of $4 is up 11.1% from last year. Over the last 5 years, Prudential has increased its dividend 5 times on a year-over-year basis 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. Prudential's current payout ratio is 34%. This means it paid out 34% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PRU expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $12.82 per share, with earnings expected to increase 9.67% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, PRU 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).