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Why Resources Connection (RECN) is a Top Dividend Stock for Your Portfolio

Zacks Equity Research
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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. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

Resources Connection in Focus

Resources Connection (RECN) is headquartered in Irvine, and is in the Business Services sector. The stock has seen a price change of 20% since the start of the year. Currently paying a dividend of $0.13 per share, the company has a dividend yield of 3.05%. In comparison, the Staffing Firms industry's yield is 1.28%, while the S&P 500's yield is 1.96%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.52 is up 8.3% from last year. Over the last 5 years, Resources Connection has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.90%. 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. Resources Connection's current payout ratio is 53%. This means it paid out 53% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, RECN expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1 per share, which represents a year-over-year growth rate of 2.04%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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, RECN 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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