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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Snap-On in Focus
Based in Kenosha, Snap-On (SNA) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 18.68%. The tool and diagnostic equipment maker is currently shelling out a dividend of $1.23 per share, with a dividend yield of 2.42%. This compares to the Tools - Handheld industry's yield of 0.15% and the S&P 500's yield of 1.48%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.92 is up 10.1% from last year. Over the last 5 years, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.36%. 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. Snap-On's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SNA for this fiscal year. The Zacks Consensus Estimate for 2021 is $12.53 per share, representing a year-over-year earnings growth rate of 7.74%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SNA is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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SnapOn Incorporated (SNA) : Free Stock Analysis Report
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