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.
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.
Hanover Insurance Group in Focus
Headquartered in Worcester, Hanover Insurance Group (THG) is a Finance stock that has seen a price change of 8.86% so far this year. The insurance company is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.14% compared to the Insurance - Property and Casualty industry's yield of 0.64% and the S&P 500's yield of 1.52%.
Looking at dividend growth, the company's current annualized dividend of $3.60 is up 4.3% from last year. In the past five-year period, 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. Right now, Hanover Insurance's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
THG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $14.49 per share, representing a year-over-year earnings growth rate of 8.62%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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