Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Hubbell in Focus
Hubbell (HUBB) is headquartered in Shelton, and is in the Industrial Products sector. The stock has seen a price change of 32% since the start of the year. The electrical products manufacturer is currently shelling out a dividend of $0.84 per share, with a dividend yield of 2.56%. This compares to the Manufacturing - Electrical Utilities industry's yield of 2.58% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.36 is up 6.7% from last year. In the past five-year period, Hubbell has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.94%. 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. Hubbell's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HUBB for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.11 per share, representing a year-over-year earnings growth rate of 11.25%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. 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 HUBB 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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