All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Exxon Mobil in Focus

Exxon Mobil (XOM) is headquartered in Spring, and is in the Oils-Energy sector. The stock has seen a price change of 17.69% since the start of the year. The oil and natural gas company is paying out a dividend of $0.95 per share at the moment, with a dividend yield of 3.23% compared to the Oil and Gas - Integrated - International industry's yield of 2.3% and the S&P 500's yield of 1.58%.

Looking at dividend growth, the company's current annualized dividend of $3.80 is up 3.3% from last year. In the past five-year period, Exxon Mobil has increased its dividend 4 times on a year-over-year basis for an average annual increase of 1.67%. 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. Exxon's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for XOM for this fiscal year. The Zacks Consensus Estimate for 2024 is $9.57 per share, representing a year-over-year earnings growth rate of 0.53%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, XOM 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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