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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Snap-On in Focus
Headquartered in Kenosha, Snap-On (SNA) is a Consumer Discretionary stock that has seen a price change of 37.62% so far this year. Currently paying a dividend of $1.23 per share, the company has a dividend yield of 2.09%. In comparison, the Tools - Handheld industry's yield is 0.16%, while the S&P 500's yield is 1.28%.
In terms of dividend growth, the company's current annualized dividend of $4.92 is up 10.1% from last year. In the past five-year period, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.44%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Snap-On's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SNA for this fiscal year. The Zacks Consensus Estimate for 2021 is $12.64 per share, with earnings expected to increase 8.68% from the year ago period.
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. With that in mind, SNA presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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SnapOn Incorporated (SNA) : Free Stock Analysis Report
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