Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Avery Dennison in Focus
Headquartered in Glendale, Avery Dennison (AVY) is an Industrial Products stock that has seen a price change of 29.23% so far this year. Currently paying a dividend of $0.58 per share, the company has a dividend yield of 2%. In comparison, the Office Supplies industry's yield is 1.84%, while the S&P 500's yield is 1.86%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.32 is up 15.4% from last year. In the past five-year period, Avery Dennison has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.87%. 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. Right now, Avery Dennison's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AVY for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.57 per share, with earnings expected to increase 8.42% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful 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 AVY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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