Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Hubbell in Focus
Headquartered in Shelton, Hubbell (HUBB) is an Industrial Products stock that has seen a price change of -9.48% so far this year. The electrical products manufacturer is paying out a dividend of $0.77 per share at the moment, with a dividend yield of 2.51% compared to the Manufacturing - Electrical Utilities industry's yield of 2.58% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $3.08 is up 7.3% from last year. Hubbell has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.03%. 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. Hubbell's current payout ratio is 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HUBB for this fiscal year. The Zacks Consensus Estimate for 2018 is $7.32 per share, representing a year-over-year earnings growth rate of 23.44%.
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.
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. That said, they can take comfort from the fact that HUBB is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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