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 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
Headquartered in Shelton, Hubbell (HUBB) is an Industrial Products stock that has seen a price change of 15.86% so far this year. The electrical products manufacturer is paying out a dividend of $0.84 per share at the moment, with a dividend yield of 2.92% compared to the Manufacturing - Electrical Utilities industry's yield of 3.1% and the S&P 500's yield of 1.99%.
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 11.35%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Hubbell's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
HUBB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.09 per share, with earnings expected to increase 10.97% 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. It's important to keep in mind that not all companies provide 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. 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 #2 (Buy).
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