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 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 in Focus
Prudential (PRU) is headquartered in Newark, and is in the Finance sector. The stock has seen a price change of -19.43% since the start of the year. Currently paying a dividend of $1.25 per share, the company has a dividend yield of 6.24%. In comparison, the Insurance - Multi line industry's yield is 2.32%, while the S&P 500's yield is 1.79%.
Looking at dividend growth, the company's current annualized dividend of $5 is up 4.2% 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 6.97%. 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. Right now, Prudential's payout ratio is 56%, which means it paid out 56% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PRU expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $11.94 per share, representing a year-over-year earnings growth rate of 26.22%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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).
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