Whether through stocks, bonds, ETFs or other types of securities, all investors love to see their portfolios generate significant returns. However, when you are an income investor, your primary goal is to generate 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 focus on dividends. A dividend is the coveted distribution of a company’s profits paid to shareholders, and investors often view it by its dividend yield, a measure that measures the dividend as a percentage of the current stock price. Numerous academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Main financial issues
Based in Des Moines, Principal Financial (PFG) is in the financials industry, and so far this year the shares have seen a 24.45% price change. The financial services company currently pays a dividend of $ 0.61 per share, with a dividend yield of 3.95%. This compares to the Financial Industry – Investment Management return of 1.6% and the S&P 500 return of 1.35%.
In terms of dividend growth, the company’s current annualized dividend of $ 2.44 is up 8.9% from a year ago. Over the past 5 years, Principal Financial has increased its dividend 4 times year over year for an average annual increase of 7.42%. Any future dividend growth will depend on both earnings growth and the payout ratio of the company; a payout ratio is the proportion of a company’s annual earnings per share that it pays out as a dividend. Principal Financial’s current payout ratio is 42%, which means it has paid out 42% of its past 12-month EPS as a dividend.
For this fiscal year, PFG expects solid earnings growth. Zacks’ consensus estimate for 2021 is $ 6.28 per share, which represents a year-over-year profit growth rate of 27.13%.
Investors love dividends for a variety of reasons, ranging from tax benefits and lower overall portfolio risk to dramatically improving earnings from equity investments. It is important to keep in mind that not all companies provide quarterly payment.
Large, established companies that have safer earnings are often considered the best dividend options, but it is quite rare to see high growth companies or tech start-ups offering a dividend to their shareholders. Income investors should be aware that high yielding stocks tend to struggle during times of rising interest rates. With that in mind, PFG is a compelling investment opportunity. Not only is this a big dividend game, the stock currently sits at Zacks rank of 3 (Hold).
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