Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Sysco in Focus
Based in Houston, Sysco (SYY) is in the Consumer Staples sector, and so far this year, shares have seen a price change of -3.18%. The food distributor is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 2.17% compared to the Food - Miscellaneous industry's yield of 0.25% and the S&P 500's yield of 1.73%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 20% from last year. Over the last 5 years, Sysco has increased its dividend 4 times on a year-over-year basis for an average annual increase of 6.70%. 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. Right now, Sysco's payout ratio is 43%, which means it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SYY for this fiscal year. The Zacks Consensus Estimate for 2020 is $3.80 per share, representing a year-over-year earnings growth rate of 7.04%.
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 have to be mindful 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 SYY 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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