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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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Eastman Chemical in Focus
Headquartered in Kingsport, Eastman Chemical (EMN) is a Basic Materials stock that has seen a price change of 24.62% so far this year. The specialty chemicals maker is paying out a dividend of $0.69 per share at the moment, with a dividend yield of 2.21% compared to the Chemical - Diversified industry's yield of 1.28% and the S&P 500's yield of 1.26%.
Looking at dividend growth, the company's current annualized dividend of $2.76 is up 3.4% from last year. In the past five-year period, Eastman Chemical has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.98%. 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. Eastman Chemical's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
EMN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.66 per share, representing a year-over-year earnings growth rate of 40.81%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 EMN 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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Eastman Chemical Company (EMN) : Free Stock Analysis Report
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