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Snap-On (SNA) is a Top Dividend Stock Right Now: Should You Buy?

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 -0.98%. Currently paying a dividend of $1.42 per share, the company has a dividend yield of 2.66%. In comparison, the Tools - Handheld industry's yield is 0.75%, while the S&P 500's yield is 1.68%.

Taking a look at the company's dividend growth, its current annualized dividend of $5.68 is up 11.2% from last year. In the past five-year period, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.71%. 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. Right now, Snap-On's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.

SNA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $15.81 per share, which represents a year-over-year growth rate of 5.97%.

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. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SNA presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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