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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 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.
Gatx in Focus
Based in Chicago, Gatx (GATX) is in the Transportation sector, and so far this year, shares have seen a price change of -11.71%. The equipment finance company is currently shelling out a dividend of $0.52 per share, with a dividend yield of 2.26%. This compares to the Transportation - Equipment and Leasing industry's yield of 1.36% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.08 is up 4% from last year. Over the last 5 years, Gatx has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.44%. 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. Gatx's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GATX for this fiscal year. The Zacks Consensus Estimate for 2022 is $5.83 per share, representing a year-over-year earnings growth rate of 15.22%.
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 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 GATX is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).