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This is Why Eastman Chemical (EMN) is a Great Dividend Stock

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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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Eastman Chemical in Focus

Eastman Chemical (EMN - Free Report) is headquartered in Kingsport, and is in the Basic Materials sector. The stock has seen a price change of 11.76% since the start of the year. The specialty chemicals maker is currently shelling out a dividend of $0.69 per share, with a dividend yield of 2.46%. This compares to the Chemical - Diversified industry's yield of 1.27% and the S&P 500's yield of 1.25%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.76 is up 3.4% from last year. In the past five-year period, Eastman Chemical has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.98%. 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, Eastman Chemical's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for EMN for this fiscal year. The Zacks Consensus Estimate for 2021 is $7.92 per share, with earnings expected to increase 28.78% from the year ago period.

Bottom Line

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. With that in mind, EMN 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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