Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sonic Automotive in Focus
Headquartered in Charlotte, Sonic Automotive (SAH) is a Retail-Wholesale stock that has seen a price change of 33.72% so far this year. Currently paying a dividend of $0.1 per share, the company has a dividend yield of 2.17%. In comparison, the Automotive - Retail and Whole Sales industry's yield is 0.52%, while the S&P 500's yield is 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.40 is up 66.7% from last year. Sonic Automotive has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 28.59%. 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. Sonic Automotive's current payout ratio is 21%. This means it paid out 21% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SAH for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.02 per share, representing a year-over-year earnings growth rate of 14.35%.
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.
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 SAH 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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Sonic Automotive, Inc. (SAH) : Free Stock Analysis Report
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