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Carter's (CRI) is a Top Dividend Stock Right Now: Should You Buy?

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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 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.

Carter's in Focus

Based in Atlanta, Carter's (CRI - Free Report) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of -18.19%. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 3.62%. In comparison, the Shoes and Retail Apparel industry's yield is 1.47%, while the S&P 500's yield is 1.71%.

In terms of dividend growth, the company's current annualized dividend of $3 is up 114.3% from last year. Carter's has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 9.40%. 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. Carter's's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.

CRI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $8.65 per share, representing a year-over-year earnings growth rate of 9.91%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CRI 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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