Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

Novartis in Focus

Based in Basel, Novartis (NVS) is in the Medical sector, and so far this year, shares have seen a price change of 12.07%. The drugmaker is paying out a dividend of $2.52 per share at the moment, with a dividend yield of 2.31% compared to the Large Cap Pharmaceuticals industry's yield of 2.1% and the S&P 500's yield of 1.61%.

Looking at dividend growth, the company's current annualized dividend of $2.52 is up 3.7% from last year. Novartis has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.66%. 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. Novartis's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.

NVS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $8.47 per share, with earnings expected to increase 8.45% 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. 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, NVS 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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This article originally published on Zacks Investment Research (zacks.com).

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