Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Hubbell in Focus
Based in Shelton, Hubbell (HUBB) is in the Industrial Products sector, and so far this year, shares have seen a price change of 20.34%. The electrical products manufacturer is paying out a dividend of $0.84 per share at the moment, with a dividend yield of 2.81% compared to the Manufacturing - Electrical Utilities industry's yield of 2.85% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $3.36 is up 6.7% from last year. Hubbell has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.35%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Hubbell's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
HUBB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.09 per share, representing a year-over-year earnings growth rate of 10.91%.
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. That said, they can take comfort from the fact that HUBB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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