Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Novartis in Focus
Headquartered in Basel, Novartis (NVS) is a Medical stock that has seen a price change of 17.45% so far this year. Currently paying a dividend of $2.6 per share, the company has a dividend yield of 2.27%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.64%, while the S&P 500's yield is 1.6%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.60 is up 7% from last year. In the past five-year period, Novartis has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.12%. Looking ahead, future dividend growth will be dependent on earnings growth and 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%. This means it paid out 31% of its trailing 12-month EPS as dividend.
NVS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $8.69 per share, with earnings expected to increase 11.27% from the year ago period.
Bottom Line
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that NVS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Novartis AG (NVS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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