All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Scotts Miracle-Gro in Focus
Scotts Miracle-Gro (SMG) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of 62.69% since the start of the year. The lawn and garden products company is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.2% compared to the Fertilizers industry's yield of 1% and the S&P 500's yield of 1.86%.
In terms of dividend growth, the company's current annualized dividend of $2.20 is up 2.8% from last year. Over the last 5 years, Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.15%. 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. Scotts's current payout ratio is 53%. This means it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SMG for this fiscal year. The Zacks Consensus Estimate for 2019 is $4.33 per share, representing a year-over-year earnings growth rate of 16.71%.
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 have to be mindful 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 SMG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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