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 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
Based in Shelton, Hubbell (HUBB) is in the Industrial Products sector, and so far this year, shares have seen a price change of 28.56%. The electrical products manufacturer is currently shelling out a dividend of $0.84 per share, with a dividend yield of 2.63%. This compares to the Manufacturing - Electrical Utilities industry's yield of 2.66% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $3.36 is up 6.7% 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 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 43%. This means it paid out 43% 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 $8.08 per share, which represents a year-over-year growth rate of 10.84%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HUBB is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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