Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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 16.05%. Currently paying a dividend of $0.84 per share, the company has a dividend yield of 2.91%. In comparison, the Manufacturing - Electrical Utilities industry's yield is 2.99%, while the S&P 500's yield is 1.95%.
In terms of 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 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. Hubbell's current payout ratio is 46%, meaning 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, representing a year-over-year earnings growth rate of 10.97%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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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