Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
International Flavors in Focus
Headquartered in New York, International Flavors (IFF) is a Basic Materials stock that has seen a price change of 0.95% so far this year. The ingredients producer for food, cosmetics and consumer products industries is paying out a dividend of $0.73 per share at the moment, with a dividend yield of 2.15% compared to the Chemical - Specialty industry's yield of 0.43% and the S&P 500's yield of 2%.
In terms of dividend growth, the company's current annualized dividend of $2.92 is up 2.8% from last year. International Flavors has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.66%. 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, International Flavors's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
IFF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.31 per share, representing a year-over-year earnings growth rate of 0.48%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, IFF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Internationa Flavors & Fragrances, Inc. (IFF) : Free Stock Analysis Report
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