Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Novartis in Focus
Based in Basel, Novartis (NVS) is in the Medical sector, and so far this year, shares have seen a price change of 9.03%. The drugmaker is paying out a dividend of $2.27 per share at the moment, with a dividend yield of 2.3% compared to the Large Cap Pharmaceuticals industry's yield of 2.51% and the S&P 500's yield of 1.74%.
In terms of dividend growth, the company's current annualized dividend of $2.27 is up 5% from last year. Novartis has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.10%. 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. Novartis's current payout ratio is 36%. This means it paid out 36% 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 $6.67 per share, which represents a year-over-year growth rate of 9.34%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 NVS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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