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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
Goldman Sachs in Focus
Based in New York, Goldman Sachs (GS) is in the Finance sector, and so far this year, shares have seen a price change of -3.31%. The investment bank is paying out a dividend of $2.5 per share at the moment, with a dividend yield of 3.01% compared to the Financial - Investment Bank industry's yield of 0.53% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $10 is up 11.1% from last year. Over the last 5 years, Goldman Sachs has increased its dividend 4 times on a year-over-year basis for an average annual increase of 29.89%. 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, Goldman's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GS expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $31.83 per share, representing a year-over-year earnings growth rate of 5.89%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, GS is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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