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.
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.
Best Buy in Focus
Best Buy (BBY - Free Report) is headquartered in Richfield, and is in the Retail-Wholesale sector. The stock has seen a price change of 11.11% since the start of the year. Currently paying a dividend of $0.45 per share, the company has a dividend yield of 2.37%. In comparison, the Retail - Consumer Electronics industry's yield is 0.14%, while the S&P 500's yield is 1.77%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 32.4% from last year. Over the last 5 years, Best Buy has increased its dividend 4 times on a year-over-year basis for an average annual increase of 21.62%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Best Buy's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BBY for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.01 per share, representing a year-over-year earnings growth rate of 13.35%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. That said, they can take comfort from the fact that BBY is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).