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Are You Looking for a High-Growth Dividend Stock? Snap-On (SNA) Could Be a Great Choice

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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.

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

Based in Kenosha, Snap-On (SNA - Free Report) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 34.47%. The tool and diagnostic equipment maker is paying out a dividend of $1.23 per share at the moment, with a dividend yield of 2.14% compared to the Tools - Handheld industry's yield of 0.46% and the S&P 500's yield of 1.35%.

Taking a look at the company's dividend growth, its 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%. 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. Snap-On's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SNA for this fiscal year. The Zacks Consensus Estimate for 2021 is $14.14 per share, with earnings expected to increase 21.58% 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. 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. That said, they can take comfort from the fact that SNA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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