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.

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.

Cincinnati Financial in Focus

Cincinnati Financial (CINF) is headquartered in Fairfield, and is in the Finance sector. The stock has seen a price change of 30.13% since the start of the year. The insurer is currently shelling out a dividend of $0.81 per share, with a dividend yield of 2.41%. This compares to the Insurance - Property and Casualty industry's yield of 0.16% and the S&P 500's yield of 1.57%.

Looking at dividend growth, the company's current annualized dividend of $3.24 is up 8% from last year. In the past five-year period, Cincinnati Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.96%. 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. Cincinnati Financial's current payout ratio is 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for CINF for this fiscal year. The Zacks Consensus Estimate for 2024 is $6.58 per share, with earnings expected to increase 9.12% 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CINF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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