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

Colgate-Palmolive in Focus

Colgate-Palmolive (CL) is headquartered in New York, and is in the Consumer Staples sector. The stock has seen a price change of 16.52% since the start of the year. The consumer products maker is currently shelling out a dividend of $0.5 per share, with a dividend yield of 2.15%. This compares to the Soap and Cleaning Materials industry's yield of 2.5% and the S&P 500's yield of 1.61%.

In terms of dividend growth, the company's current annualized dividend of $2 is up 4.7% from last year. Over the last 5 years, Colgate-Palmolive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.79%. 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. Right now, Colgate-Palmolive's payout ratio is 57%, which means it paid out 57% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for CL for this fiscal year. The Zacks Consensus Estimate for 2024 is $3.52 per share, with earnings expected to increase 8.98% 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. It's important to keep in mind that not all companies provide 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. That said, they can take comfort from the fact that CL is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.