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.
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.
Gatx in Focus
Based in Chicago, Gatx (GATX) is in the Transportation sector, and so far this year, shares have seen a price change of -9.84%. Currently paying a dividend of $0.52 per share, the company has a dividend yield of 2.21%. In comparison, the Transportation - Equipment and Leasing industry's yield is 1.37%, while the S&P 500's yield is 1.65%.
Looking at dividend growth, the company's current annualized dividend of $2.08 is up 4% from last year. Over the last 5 years, Gatx has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.46%. 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. Gatx's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for GATX for this fiscal year. The Zacks Consensus Estimate for 2022 is $5.95 per share, representing a year-over-year earnings growth rate of 17.59%.
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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 GATX 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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