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 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.
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 8.71%. Currently paying a dividend of $0.95 per share, the company has a dividend yield of 2.41%. In comparison, the Tools - Handheld industry's yield is 1.78%, while the S&P 500's yield is 1.91%.
Looking at dividend growth, the company's current annualized dividend of $3.80 is up 11.4% 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 15.12%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.
SNA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $12.28 per share, with earnings expected to increase 3.94% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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, SNA 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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