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 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.
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 27.69% 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 2.02% compared to the Office Supplies industry's yield of 1.99% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.32 is up 15.4% from last year. In the past five-year period, Avery Dennison has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.87%. 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. Avery Dennison's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
AVY is expecting earnings to expand this fiscal year as well. 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 a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful 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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