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Eaton (ETN) 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. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Eaton in Focus

Based in Dublin, Eaton (ETN - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of -21.81%. The power management company is currently shelling out a dividend of $0.81 per share, with a dividend yield of 2.4%. This compares to the Manufacturing - Electronics industry's yield of 1% and the S&P 500's yield of 1.8%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.24 is up 6.6% from last year. Eaton has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.57%. 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. Eaton's current payout ratio is 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for ETN for this fiscal year. The Zacks Consensus Estimate for 2022 is $7.55 per share, representing a year-over-year earnings growth rate of 14.05%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. That said, they can take comfort from the fact that ETN 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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