Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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.
Cigna in Focus
Headquartered in Bloomfield, Cigna (CI) is a Finance stock that has seen a price change of -26.33% so far this year. The health insurer is paying out a dividend of $1.23 per share at the moment, with a dividend yield of 2.02% compared to the Insurance - Multi line industry's yield of 2.32% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $4.92 is up 9.8% from last year. In the past five-year period, Cigna has increased its dividend 3 times on a year-over-year basis for an average annual increase of 306.36%. 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. Right now, Cigna's payout ratio is 22%, which means it paid out 22% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CI for this fiscal year. The Zacks Consensus Estimate for 2023 is $24.79 per share, which represents a year-over-year growth rate of 6.53%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CI 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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