Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
Hanover Insurance Group in Focus
Hanover Insurance Group (THG) is headquartered in Worcester, and is in the Finance sector. The stock has seen a price change of 7.4% since the start of the year. Currently paying a dividend of $0.9 per share, the company has a dividend yield of 2.17%. In comparison, the Insurance - Property and Casualty industry's yield is 0.68%, while the S&P 500's yield is 1.63%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.60 is up 4.3% from last year. Over the last 5 years, Hanover Insurance Group has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.93%. 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. Hanover Insurance's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for THG for this fiscal year. The Zacks Consensus Estimate for 2025 is $14.20 per share, representing a year-over-year earnings growth rate of 6.45%.
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. 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, THG 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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The Hanover Insurance Group, Inc. (THG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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