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 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
Based in Glendale, Avery Dennison (AVY) is in the Industrial Products sector, and so far this year, shares have seen a price change of 26.33%. The maker of office products is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.04% compared to the Office Supplies industry's yield of 1.84% and the S&P 500's yield of 1.86%.
In terms of dividend growth, the company's current annualized dividend of $2.32 is up 15.4% from last year. Avery Dennison has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.87%. 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. Avery Dennison's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AVY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.56 per share, with earnings expected to increase 8.25% from the year ago period.
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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 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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