In This Article:
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Principal Financial in Focus
Based in Des Moines, Principal Financial (PFG) is in the Finance sector, and so far this year, shares have seen a price change of 10%. The financial services company is paying out a dividend of $0.75 per share at the moment, with a dividend yield of 3.52% compared to the Insurance - Multi line industry's yield of 1.56% and the S&P 500's yield of 1.59%.
Looking at dividend growth, the company's current annualized dividend of $3 is up 5.3% from last year. Principal Financial has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 5.64%. 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. Principal Financial's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PFG for this fiscal year. The Zacks Consensus Estimate for 2025 is $8.51 per share, which represents a year-over-year growth rate of 22.09%.
Bottom Line
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PFG 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).