Why Novartis (NVS) is a Great Dividend Stock Right Now
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.
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.
Novartis in Focus
Headquartered in Basel, Novartis (NVS) is a Medical stock that has seen a price change of -0.58% so far this year. Currently paying a dividend of $2.27 per share, the company has a dividend yield of 2.52%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.56%, while the S&P 500's yield is 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.27 is up 5% from last year. Novartis has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 3.62%. 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. Novartis's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NVS for this fiscal year. The Zacks Consensus Estimate for 2023 is $6.53 per share, representing a year-over-year earnings growth rate of 7.05%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, NVS 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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