All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Bristol-Myers Squibb in Focus
Bristol-Myers Squibb (BMY) is headquartered in New York, and is in the Medical sector. The stock has seen a price change of -5.48% since the start of the year. The biopharmaceutical company is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 2.76% compared to the Large Cap Pharmaceuticals industry's yield of 2.85% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $1.60 is up 2.6% from last year. Bristol-Myers Squibb has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.54%. 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. Bristol-Myers's current payout ratio is 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMY expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.45 per share, representing a year-over-year earnings growth rate of 14.62%.
Bottom Line
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.
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 BMY 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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