All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
General Dynamics in Focus
Headquartered in Falls Church, General Dynamics (GD) is an Aerospace stock that has seen a price change of 13.51% so far this year. The defense contractor is paying out a dividend of $1.02 per share at the moment, with a dividend yield of 2.29% compared to the Aerospace - Defense industry's yield of 0.92% and the S&P 500's yield of 1.9%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 12.4% from last year. Over the last 5 years, General Dynamics has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.72%. 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. General Dynamics's current payout ratio is 36%. This means it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GD expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $11.88 per share, representing a year-over-year earnings growth rate of 5.88%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, GD 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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General Dynamics Corporation (GD) : Free Stock Analysis Report
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