Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.

HP in Focus

HP (HPQ) is headquartered in Palo Alto, and is in the Computer and Technology sector. The stock has seen a price change of 6.13% since the start of the year. Currently paying a dividend of $0.29 per share, the company has a dividend yield of 3.34%. In comparison, the Computer - Micro Computers industry's yield is 1.39%, while the S&P 500's yield is 1.56%.

Looking at dividend growth, the company's current annualized dividend of $1.16 is up 5.3% from last year. Over the last 5 years, HP has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.22%. 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. HP's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, HPQ expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $3.57 per share, with earnings expected to increase 5.62% from the year ago period.

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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HPQ 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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