Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. However, 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 21.43% since the start of the year. The insurance company is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 2.31% compared to the Insurance – Property and Casualty industry’s yield of 0.35% and the S&P 500’s yield of 1.58%.

Taking a look at the company’s dividend growth, its current annualized dividend of $3.40 is up 3.7% 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 7.28%. 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 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.

THG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $10.85 per share, representing a year-over-year earnings growth rate of 595.51%.

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.

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, THG presents a compelling investment opportunity; it’s not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

To read this article on Zacks.com click here.