Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
United Technologies in Focus
Headquartered in Farmington, United Technologies (UTX) is a Conglomerates stock that has seen a price change of 28.09% so far this year. The maker of elevators, jet engines and other products is paying out a dividend of $0.74 per share at the moment, with a dividend yield of 2.16% compared to the Diversified Operations industry's yield of 1.4% and the S&P 500's yield of 1.91%.
In terms of dividend growth, the company's current annualized dividend of $2.94 is up 3.7% from last year. In the past five-year period, United Technologies has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.26%. 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. United Technologies's current payout ratio is 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UTX for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.03 per share, which represents a year-over-year growth rate of 5.52%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 UTX 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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