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

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.

Allstate in Focus

Headquartered in Northbrook, Allstate (ALL) is a Finance stock that has seen a price change of 29.48% so far this year. Currently paying a dividend of $0.92 per share, the company has a dividend yield of 2.03%. In comparison, the Insurance - Property and Casualty industry's yield is 0.35%, while the S&P 500's yield is 1.5%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.68 is up 3.4% from last year. Over the last 5 years, Allstate has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.64%. 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. Allstate's current payout ratio is 28%, meaning it paid out 28% of its trailing 12-month EPS as dividend.

ALL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $15.12 per share, which represents a year-over-year growth rate of 1,491.58%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, ALL 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).