Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Royal Caribbean in Focus
Royal Caribbean (RCL - Free Report) is headquartered in Miami, and is in the Consumer Discretionary sector. The stock has seen a price change of -6.87% since the start of the year. The cruise operator is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.16% compared to the Leisure and Recreation Services industry's yield of 0.19% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.40 is up 11.1% from last year. In the past five-year period, Royal Caribbean has increased its dividend 5 times on a year-over-year basis for an average annual increase of 23.83%. 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. Right now, Royal Caribbean's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, RCL expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $8.90 per share, with earnings expected to increase 18.19% from the year ago period.
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.
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, RCL 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).