Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
KLA-Tencor in Focus
Headquartered in Milpitas, KLA-Tencor (KLAC) is a Computer and Technology stock that has seen a price change of 19% so far this year. The maker of equipment for manufacturing semiconductors is paying out a dividend of $2.84 per share at the moment, with a dividend yield of 37% compared to the Semiconductor Equipment - Wafer Fabrication industry's yield of 16% and the S&P 500's yield of 0.75%.
In terms of dividend growth, the company's current annualized dividend of $2.79 is up 7.5% from last year. Over the last 5 years, KLA-Tencor has increased its dividend 38.90 times on a year-over-year basis for an average annual increase of 5%. 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. Right now, KLA-Tencor's payout ratio is 0.59%, which means it paid out 0.59% of its trailing 12-month EPS as dividend.
KLAC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3 per share, with earnings expected to increase 9.79% 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. 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. That said, they can take comfort from the fact that KLAC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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