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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 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.
Illinois Tool Works in Focus
Headquartered in Glenview, Illinois Tool Works (ITW - Free Report) is an Industrial Products stock that has seen a price change of 7.35% so far this year. Currently paying a dividend of $1.31 per share, the company has a dividend yield of 2.22%. In comparison, the Manufacturing - General Industrial industry's yield is 0.13%, while the S&P 500's yield is 1.69%.
Looking at dividend growth, the company's current annualized dividend of $5.24 is up 3.6% from last year. In the past five-year period, Illinois Tool Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.19%. 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. Illinois Tool Works's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
ITW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $9.61 per share, representing a year-over-year earnings growth rate of 4.80%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ITW 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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Illinois Tool Works (ITW) Could Be a Great Choice
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 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.
Illinois Tool Works in Focus
Headquartered in Glenview, Illinois Tool Works (ITW - Free Report) is an Industrial Products stock that has seen a price change of 7.35% so far this year. Currently paying a dividend of $1.31 per share, the company has a dividend yield of 2.22%. In comparison, the Manufacturing - General Industrial industry's yield is 0.13%, while the S&P 500's yield is 1.69%.
Looking at dividend growth, the company's current annualized dividend of $5.24 is up 3.6% from last year. In the past five-year period, Illinois Tool Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.19%. 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. Illinois Tool Works's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
ITW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $9.61 per share, representing a year-over-year earnings growth rate of 4.80%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ITW 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).