All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Parker-Hannifin in Focus
Headquartered in Cleveland, Parker-Hannifin (PH) is an Industrial Products stock that has seen a price change of -24.33% so far this year. The maker of motion and control products is currently shelling out a dividend of $0.76 per share, with a dividend yield of 2.01%. This compares to the Manufacturing - General Industrial industry's yield of 0.56% and the S&P 500's yield of 2.04%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.04 is up 10.9% from last year. Over the last 5 years, Parker-Hannifin has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.77%. 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. Right now, Parker-Hannifin's payout ratio is 28%, which means it paid out 28% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PH expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $11.61 per share, representing a year-over-year earnings growth rate of 11.42%.
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.
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, PH 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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