Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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.
Avery Dennison in Focus
Avery Dennison (AVY) is headquartered in Glendale, and is in the Industrial Products sector. The stock has seen a price change of 21.84% since the start of the year. The maker of office products is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.12% compared to the Office Supplies industry's yield of 2.06% and the S&P 500's yield of 1.95%.
Looking at dividend growth, the company's current annualized dividend of $2.32 is up 15.4% from last year. Avery Dennison has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.87%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Avery Dennison's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AVY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.54 per share, representing a year-over-year earnings growth rate of 7.92%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AVY 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).
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