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Why Snap-On (SNA) 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. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Snap-On in Focus

Snap-On (SNA - Free Report) is headquartered in Kenosha, and is in the Consumer Discretionary sector. The stock has seen a price change of 30.6% since the start of the year. Currently paying a dividend of $1.23 per share, the company has a dividend yield of 2.2%. In comparison, the Tools - Handheld industry's yield is 0.46%, while the S&P 500's yield is 1.33%.

Looking at dividend growth, the company's current annualized dividend of $4.92 is up 10.1% from last year. Snap-On has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 15.03%. 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. Snap-On's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.

SNA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $13.46 per share, which represents a year-over-year growth rate of 15.74%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SNA 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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