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Why Novartis (NVS) is a Top Dividend Stock for Your Portfolio

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.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 10.61%. The drugmaker is currently shelling out a dividend of $2.27 per share, with a dividend yield of 2.27%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.41% and the S&P 500's yield of 1.75%.

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Taking a look at the company's dividend growth, its current annualized dividend of $2.27 is up 5% from last year. Over the last 5 years, Novartis has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.10%. 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. Right now, Novartis's payout ratio is 36%, which 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%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious 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 also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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