Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
MetLife in Focus
Based in New York, MetLife (MET) is in the Finance sector, and so far this year, shares have seen a price change of -29.21%. The insurer is currently shelling out a dividend of $0.5 per share, with a dividend yield of 4.06%. This compares to the Insurance - Multi line industry's yield of 2.14% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.08 is up 5.1% from last year. Over the last 5 years, MetLife has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.28%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, MetLife's payout ratio is 32%, which means it paid out 32% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MET expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $7.97 per share, which represents a year-over-year growth rate of 16.35%.
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.
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. With that in mind, MET 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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