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.
RPM International in Focus
Headquartered in Medina, RPM International (RPM) is a Construction stock that has seen a price change of 18.1% so far this year. The specialty chemicals company is paying out a dividend of $0.36 per share at the moment, with a dividend yield of 2.07% compared to the Paints and Related Products industry's yield of 0.52% and the S&P 500's yield of 1.9%.
Looking at dividend growth, the company's current annualized dividend of $1.44 is up 5.1% from last year. Over the last 5 years, RPM International has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.74%. 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. RPM International's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RPM for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.37 per share, with earnings expected to increase 24.35% 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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, RPM 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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