Snap-On (SNA) Could Be a Great Choice
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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Snap-On in Focus
Snap-On (SNA) is headquartered in Kenosha, and is in the Consumer Discretionary sector. The stock has seen a price change of -8.28% since the start of the year. The tool and diagnostic equipment maker is currently shelling out a dividend of $1.42 per share, with a dividend yield of 2.88%. This compares to the Tools - Handheld industry's yield of 0.13% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $5.68 is up 11.2% from last year. Snap-On has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 15%. 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 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SNA expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $15.77 per share, which represents a year-over-year growth rate of 5.70%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious 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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