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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 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 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.
Mueller Water Products in Focus
Headquartered in Atlanta, Mueller Water Products (MWA) is an Industrial Products stock that has seen a price change of -21.11% so far this year. The maker of fire hydrants, pipes and water valves is currently shelling out a dividend of $0.06 per share, with a dividend yield of 2.04%. This compares to the Steel - Pipe and Tube industry's yield of 0.45% and the S&P 500's yield of 1.66%.
Looking at dividend growth, the company's current annualized dividend of $0.23 is up 4.5% from last year. In the past five-year period, Mueller Water Products has increased its dividend 4 times on a year-over-year basis for an average annual increase of 6.85%. 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. Mueller Water Products's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MWA for this fiscal year. The Zacks Consensus Estimate for 2022 is $0.65 per share, which represents a year-over-year growth rate of 16.07%.
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.
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. With that in mind, MWA 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).