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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sonoco in Focus
Based in Hartsville, Sonoco (SON) is in the Industrial Products sector, and so far this year, shares have seen a price change of 9.01%. Currently paying a dividend of $0.41 per share, the company has a dividend yield of 2.83%. In comparison, the Containers - Paper and Packaging industry's yield is 2.41%, while the S&P 500's yield is 1.8%.
In terms of dividend growth, the company's current annualized dividend of $1.64 is up 6.5% from last year. Over the last 5 years, Sonoco has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.26%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Sonoco's current payout ratio is 52%, meaning it paid out 52% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SON expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.34 per share, which represents a year-over-year growth rate of 19.71%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 SON is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Sonoco Products Company (SON) : Free Stock Analysis Report
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