Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Capital Southwest in Focus
Based in Dallas, Capital Southwest (CSWC) is in the Finance sector, and so far this year, shares have seen a price change of 21.33%. The business development company is paying out a dividend of $0.46 per share at the moment, with a dividend yield of 7.17% compared to the Financial - Investment Management industry's yield of 3.05% and the S&P 500's yield of 2.04%.
In terms of dividend growth, the company's current annualized dividend of $1.44 is up 45.5% from last year. In the past five-year period, Capital Southwest has increased its dividend 3 times on a year-over-year basis for an average annual increase of 61.76%. 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. Capital Southwest's current payout ratio is 115%, meaning it paid out 115% of its trailing 12-month EPS as dividend.
CSWC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.44 per share, with earnings expected to increase 42.57% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CSWC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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Capital Southwest Corporation (CSWC) : Free Stock Analysis Report
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