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Why Snap-On (SNA) is a Great Dividend Stock Right Now

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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.

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.

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 31.64%. Currently paying a dividend of $1.23 per share, the company has a dividend yield of 2.18%. In comparison, the Tools - Handheld industry's yield is 0.54%, while the S&P 500's yield is 1.37%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.92 is up 10.1% from last year. Over the last 5 years, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.14%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Snap-On's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, SNA expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $14.25 per share, representing a year-over-year earnings growth rate of 22.53%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. 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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