Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
McGrath in Focus
Based in Livermore, McGrath (MGRC) is in the Finance sector, and so far this year, shares have seen a price change of 6.25%. The business-to-business rental company is currently shelling out a dividend of $0.46 per share, with a dividend yield of 2.13%. This compares to the Financial - Leasing Companies industry's yield of 1.08% and the S&P 500's yield of 1.8%.
In terms of dividend growth, the company's current annualized dividend of $1.82 is up 5.5% from last year. McGrath has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.87%. 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. McGrath's current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MGRC for this fiscal year. The Zacks Consensus Estimate for 2022 is $4.12 per share, representing a year-over-year earnings growth rate of 12.57%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 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 MGRC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
McGrath RentCorp (MGRC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research