Novartis (NVS) 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.

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 21.05%. Currently paying a dividend of $2.6 per share, the company has a dividend yield of 2.2%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.29%, while the S&P 500's yield is 1.56%.

Looking at dividend growth, the company's current annualized dividend of $2.60 is up 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 5.12%. 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%. This means it paid out 31% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for NVS for this fiscal year. The Zacks Consensus Estimate for 2025 is $8.74 per share, representing a year-over-year earnings growth rate of 11.91%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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This article originally published on Zacks Investment Research (zacks.com).

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