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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.
Posco in Focus
Headquartered in Seoul, Posco (PKX) is a Basic Materials stock that has seen a price change of 23.21% so far this year. The steelmaker is currently shelling out a dividend of $0.56 per share, with a dividend yield of 2.91%. This compares to the Steel - Producers industry's yield of 0.17% and the S&P 500's yield of 1.32%.
Looking at dividend growth, the company's current annualized dividend of $2.23 is up 56.7% from last year. Over the last 5 years, Posco has increased its dividend 4 times on a year-over-year basis for an average annual increase of 36.25%. 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. Right now, Posco's payout ratio is 35%, which means it paid out 35% of its trailing 12-month EPS as dividend.
PKX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.96 per share, representing a year-over-year earnings growth rate of 109.84%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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, PKX 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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