Prudential (PRU) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and, of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Prudential (PRU) is headquartered in Newark, and is in the Finance sector. The stock has seen a price change of -14% since the start of the year. Currently paying a dividend of $1.35 per share, the company has a dividend yield of 5.3%. In comparison, the Insurance - Multi line industry's yield is 1.65%, while the S&P 500's yield is 1.52%.

Looking at dividend growth, the company's current annualized dividend of $5.40 is up 3.8% from last year. Over the last 5 years, Prudential has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.27%. 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. Prudential's current payout ratio is 41%, meaning it paid out 41% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, PRU expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $13.72 per share, representing a year-over-year earnings growth rate of 8.72%.

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 its 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. With that in mind, PRU 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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