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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Prudential in Focus

Headquartered in Newark, Prudential (PRU) is a Finance stock that has seen a price change of 18.86% so far this year. Currently paying a dividend of $1.3 per share, the company has a dividend yield of 4.22%. In comparison, the Insurance - Multi line industry's yield is 2.15%, while the S&P 500's yield is 1.56%.

In terms of dividend growth, the company's current annualized dividend of $5.20 is up 4% from last year. Prudential has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.01%. 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. Prudential's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PRU for this fiscal year. The Zacks Consensus Estimate for 2024 is $13.39 per share, with earnings expected to increase 15.23% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PRU 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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