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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Colgate-Palmolive in Focus

Based in New York, Colgate-Palmolive (CL) is in the Consumer Staples sector, and so far this year, shares have seen a price change of 8.78%. The consumer products maker is currently shelling out a dividend of $0.48 per share, with a dividend yield of 2.21%. This compares to the Soap and Cleaning Materials industry's yield of 2.42% and the S&P 500's yield of 1.62%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.92 is up 0.5% from last year. Colgate-Palmolive has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.79%. 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. Colgate-Palmolive's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.

CL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $3.50 per share, which represents a year-over-year growth rate of 8.36%.

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CL 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.