Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Novartis in Focus
Headquartered in Basel, Novartis (NVS) is a Medical stock that has seen a price change of 12.64% so far this year. The drugmaker is currently shelling out a dividend of $2.52 per share, with a dividend yield of 2.29%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.23% and the S&P 500's yield of 1.59%.
In terms of dividend growth, the company's current annualized dividend of $2.52 is up 3.7% from last year. Over the last 5 years, Novartis has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.66%. 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. Novartis's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NVS for this fiscal year. The Zacks Consensus Estimate for 2025 is $8.47 per share, which represents a year-over-year growth rate of 8.45%.
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. But, not every company offers 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, NVS 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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Novartis AG (NVS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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