Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Timken in Focus
Headquartered in North Canton, Timken (TKR) is an Industrial Products stock that has seen a price change of -2.54% so far this year. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.34%. In comparison, the Metal Products - Procurement and Fabrication industry's yield is 0.67%, while the S&P 500's yield is 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 4.7% from last year. Over the last 5 years, Timken has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.08%. 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. Timken's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
TKR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.12 per share, which represents a year-over-year growth rate of 56.65%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 must be conscious 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 TKR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Timken Company (The) (TKR) : Free Stock Analysis Report
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