Principal Financial (PFG) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Principal Financial in Focus

Principal Financial (PFG) is headquartered in Des Moines, and is in the Finance sector. The stock has seen a price change of -1.1% since the start of the year. The financial services company is currently shelling out a dividend of $0.75 per share, with a dividend yield of 3.92%. This compares to the Insurance - Multi line industry's yield of 1.68% and the S&P 500's yield of 1.59%.

Looking at dividend growth, the company's current annualized dividend of $3 is up 5.3% from last year. Over the last 5 years, Principal Financial has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.86%. 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. Right now, Principal Financial's payout ratio is 42%, which means it paid out 42% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PFG for this fiscal year. The Zacks Consensus Estimate for 2025 is $8.12 per share, representing a year-over-year earnings growth rate of 16.50%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PFG 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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