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This is Why Knoll (KNL) is a Great Dividend Stock

Zacks Equity Research

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.

Knoll in Focus

Based in East Greenville, Knoll (KNL) is in the Business Services sector, and so far this year, shares have seen a price change of 41.81%. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.91%. In comparison, the Business - Office Products industry's yield is 2.91%, while the S&P 500's yield is 1.87%.

Looking at dividend growth, the company's current annualized dividend of $0.68 is up 13.3% from last year. Over the last 5 years, Knoll has increased its dividend 2 times on a year-over-year basis for an average annual increase of 5.92%. 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, Knoll's payout ratio is 32%, which means it paid out 32% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for KNL for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.03 per share, with earnings expected to increase 9.73% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, KNL 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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Zacks Investment Research