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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Hormel Foods in Focus
Hormel Foods (HRL) is headquartered in Austin, and is in the Consumer Staples sector. The stock has seen a price change of 2.99% since the start of the year. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2%. In comparison, the Food - Meat Products industry's yield is 0.01%, while the S&P 500's yield is 2.19%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.93 is up 10.7% from last year. Over the last 5 years, Hormel Foods has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.53%. 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. Right now, Hormel's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
HRL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $1.75 per share, representing a year-over-year earnings growth rate of 0.57%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. With that in mind, HRL is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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