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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Whirlpool in Focus
Whirlpool (WHR) is headquartered in Benton Harbor, and is in the Consumer Discretionary sector. The stock has seen a price change of 19.25% since the start of the year. The maker of Maytag, KitchenAid and other appliances is currently shelling out a dividend of $1.25 per share, with a dividend yield of 2.32%. This compares to the Household Appliances industry's yield of 1.03% and the S&P 500's yield of 1.38%.
Taking a look at the company's dividend growth, its current annualized dividend of $5 is up 3.1% from last year. Over the last 5 years, Whirlpool has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.63%. 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. Right now, Whirlpool's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.
WHR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $20.19 per share, with earnings expected to increase 8.84% 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. However, not all companies offer 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WHR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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