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Why BASF SE (BASFY) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.

BASF SE in Focus

Headquartered in Ludwigshafen, BASF SE (BASFY - Free Report) is a Basic Materials stock that has seen a price change of 5.08% so far this year. Currently paying a dividend of $0.71 per share, the company has a dividend yield of 3.43%. In comparison, the Chemical - Diversified industry's yield is 1.41%, while the S&P 500's yield is 1.29%.

In terms of dividend growth, the company's current annualized dividend of $0.71 is up 6.4% from last year. BASF SE has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 2.33%. 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. BASF SE's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, BASFY expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $1.34 per share, with earnings expected to increase 45.65% 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. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, BASFY 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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