All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Assured Guaranty in Focus
Based in Hamilton Bermuda, Assured Guaranty (AGO – Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -12.35%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.05%. In comparison, the Insurance – Multi line industry’s yield is 2.07%, while the S&P 500’s yield is 1.68%.
Looking at dividend growth, the company’s current annualized dividend of $1.12 is up 12% from last year. Over the last 5 years, Assured Guaranty has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.69%. 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. Assured Guaranty’s current payout ratio is 29%. This means it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AGO for this fiscal year. The Zacks Consensus Estimate for 2023 is $4.60 per share, with earnings expected to increase 11.11% 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. However, not all companies offer 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. 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, AGO 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).
