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Why Astrazeneca (AZN) is a Great Dividend Stock Right Now

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.

Astrazeneca in Focus

Based in Cambridge, Astrazeneca (AZN) is in the Medical sector, and so far this year, shares have seen a price change of 9.45%. The pharmaceutical is currently shelling out a dividend of $0.96 per share, with a dividend yield of 2.6%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.41% and the S&P 500's yield of 1.75%.

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In terms of dividend growth, the company's current annualized dividend of $1.93 is up 35.9% from last year. Astrazeneca has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 4.79%. 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. Astrazeneca's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AZN for this fiscal year. The Zacks Consensus Estimate for 2023 is $3.69 per share, which represents a year-over-year growth rate of 10.81%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AZN 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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