Principal Financial Could Be a Great Choice

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Principal Financial in Focus

Based in Des Moines, Principal Financial PFG is in the Finance sector, and so far this year, shares have seen a price change of 7.31%. Currently paying a dividend of $0.71 per share, the company has a dividend yield of 3.36%. In comparison, the Financial - Investment Management industry's yield is 2.73%, while the S&P 500's yield is 1.58%.

In terms of dividend growth, the company's current annualized dividend of $2.84 is up 9.2% from last year. Over the last 5 years, Principal Financial has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.32%. 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. Principal Financial's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.

PFG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $7.43 per share, with earnings expected to increase 13.44% 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. With that in mind, PFG 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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