Why HP (HPQ) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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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.

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 30.91% since the start of the year. The personal computer and printer maker is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 2.41% compared to the Computer - Mini computers industry's yield of 1.51% and the S&P 500's yield of 1.33%.

Looking at dividend growth, the company's current annualized dividend of $0.78 is up 0.6% from last year. HP has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.20%. 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. HP's current payout ratio is 22%. This means it paid out 22% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for HPQ for this fiscal year. The Zacks Consensus Estimate for 2021 is $4.03 per share, representing a year-over-year earnings growth rate of 6.33%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, HPQ 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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