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.
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.
Lincoln Electric Holdings in Focus
Headquartered in Cleveland, Lincoln Electric Holdings (LECO) is an Industrial Products stock that has seen a price change of 5.97% so far this year. The manufacturer of specialized welding products and other equipment is paying out a dividend of $0.47 per share at the moment, with a dividend yield of 2.25% compared to the Manufacturing - Tools & Related Products industry's yield of 1.52% and the S&P 500's yield of 1.95%.
Looking at dividend growth, the company's current annualized dividend of $1.88 is up 14.6% from last year. In the past five-year period, Lincoln Electric Holdings has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.25%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Lincoln Electric's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LECO for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.22 per share, which represents a year-over-year growth rate of 8.30%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LECO 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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Lincoln Electric Holdings, Inc. (LECO) : Free Stock Analysis Report
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