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.
Goldman Sachs in Focus
Goldman Sachs (GS) is headquartered in New York, and is in the Finance sector. The stock has seen a price change of 0.3% since the start of the year. Currently paying a dividend of $1.25 per share, the company has a dividend yield of 2.17%. In comparison, the Financial – Investment Bank industry’s yield is 0.74%, while the S&P 500’s yield is 1.76%.
In terms of dividend growth, the company’s current annualized dividend of $5 is up 20.5% 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 12.29%. 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. Goldman’s current payout ratio is 24%. This means it paid out 24% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GS for this fiscal year. The Zacks Consensus Estimate for 2020 is $24.60 per share, representing a year-over-year earnings growth rate of 16.98%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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