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.

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.

Hanover Insurance Group in Focus

Headquartered in Worcester, Hanover Insurance Group (THG Quick QuoteTHG - Free Report) is a Finance stock that has seen a price change of 12.36% so far this year. The insurance company is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.07% compared to the Insurance - Property and Casualty industry's yield of 0.59% and the S&P 500's yield of 1.56%.

In terms of dividend growth, the company's current annualized dividend of $3.60 is up 4.3% from last year. Hanover Insurance Group has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.96%. 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. Hanover Insurance's current payout ratio is 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for THG for this fiscal year. The Zacks Consensus Estimate for 2025 is $14.63 per share, which represents a year-over-year growth rate of 9.67%.

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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that THG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).