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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. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Snap-On in Focus
Headquartered in Kenosha, Snap-On (SNA) is a Consumer Discretionary stock that has seen a price change of 7.73% so far this year. Currently paying a dividend of $1.23 per share, the company has a dividend yield of 2.67%. In comparison, the Tools - Handheld industry's yield is 0.14%, while the S&P 500's yield is 1.43%.
In terms of dividend growth, the company's current annualized dividend of $4.92 is up 10.1% 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 15.36%. 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. Snap-On's current payout ratio is 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SNA expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $11.84 per share, with earnings expected to increase 1.81% from the year ago period.
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.
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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SnapOn Incorporated (SNA) : Free Stock Analysis Report
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