Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Timken in Focus
Timken (TKR) is headquartered in North Canton, and is in the Industrial Products sector. The stock has seen a price change of -12.84% since the start of the year. The maker of bearings and power transmissions is currently shelling out a dividend of $0.28 per share, with a dividend yield of 2.61%. This compares to the Metal Products - Procurement and Fabrication industry's yield of 1.02% and the S&P 500's yield of 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 4.7% from last year. Timken has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 2.85%. 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. Timken's current payout ratio is 32%. This means it paid out 32% of its trailing 12-month EPS as dividend.
TKR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.17 per share, which represents a year-over-year growth rate of 58.56%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that TKR 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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Timken Company (The) (TKR) : Free Stock Analysis Report
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