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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Mueller Water Products in Focus
Headquartered in Atlanta, Mueller Water Products (MWA) is an Industrial Products stock that has seen a price change of -36.06% so far this year. Currently paying a dividend of $0.05 per share, the company has a dividend yield of 2.74%. In comparison, the Steel - Pipe and Tube industry's yield is 0.82%, while the S&P 500's yield is 2.41%.
Looking at dividend growth, the company's current annualized dividend of $0.21 is up 3.4% from last year. Over the last 5 years, Mueller Water Products has increased its dividend 5 times on a year-over-year basis for an average annual increase of 28.64%. 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. Mueller Water Products's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
MWA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $0.63 per share, representing a year-over-year earnings growth rate of 3.28%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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, MWA 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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