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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Posco in Focus
Headquartered in Seoul, Posco (PKX) is a Basic Materials stock that has seen a price change of 22.34% so far this year. The steelmaker is currently shelling out a dividend of $0.56 per share, with a dividend yield of 2.93%. This compares to the Steel - Producers industry's yield of 0.14% and the S&P 500's yield of 1.29%.
Looking at dividend growth, the company's current annualized dividend of $2.23 is up 56.7% from last year. In the past five-year period, Posco has increased its dividend 4 times on a year-over-year basis for an average annual increase of 36.25%. 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. Posco's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
PKX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.96 per share, with earnings expected to increase 109.84% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PKX 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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