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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.
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.
Eaton in Focus
Eaton (ETN) is headquartered in Dublin, and is in the Industrial Products sector. The stock has seen a price change of 24.28% since the start of the year. Currently paying a dividend of $0.76 per share, the company has a dividend yield of 2.04%. In comparison, the Manufacturing - Electronics industry's yield is 0.47%, while the S&P 500's yield is 1.45%.
In terms of dividend growth, the company's current annualized dividend of $3.04 is up 4.1% from last year. Over the last 5 years, Eaton has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.50%. 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, Eaton's payout ratio is 54%, which means it paid out 54% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ETN expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $6.74 per share, representing a year-over-year earnings growth rate of 58.96%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ETN 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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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
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