Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Stanley Black & Decker in Focus
Stanley Black & Decker (SWK) is headquartered in New Britain, and is in the Industrial Products sector. The stock has seen a price change of 9.57% since the start of the year. The tool company is paying out a dividend of $0.66 per share at the moment, with a dividend yield of 2.01% compared to the Manufacturing - Tools & Related Products industry's yield of 1.92% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $2.64 is up 2.3% from last year. In the past five-year period, Stanley Black & Decker has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.07%. 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. Stanley Black & Decker's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SWK for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.61 per share, which represents a year-over-year growth rate of 5.64%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. With that in mind, SWK 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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Stanley Black & Decker, Inc. (SWK) : Free Stock Analysis Report
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