All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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.

American International Group in Focus

American International Group (AIG) is headquartered in New York, and is in the Finance sector. The stock has seen a price change of 9.46% since the start of the year. The insurer is paying out a dividend of $0.4 per share at the moment, with a dividend yield of 2.01% compared to the Insurance - Multi line industry's yield of 1.6% and the S&P 500's yield of 1.54%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.60 is up 2.6% from last year. In the past five-year period, American International Group has increased its dividend 2 times on a year-over-year basis for an average annual increase of 4.96%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, American International Group's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.

AIG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $6.25 per share, with earnings expected to increase 26.26% from the year ago period.

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.

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, AIG 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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American International Group, Inc. (AIG) : Free Stock Analysis Report

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

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