Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Huntsman in Focus
Based in The Woodlands, Huntsman (HUN - Free Report) is in the Basic Materials sector, and so far this year, shares have seen a price change of 30%. The chemical company is paying out a dividend of $2.33 per share at the moment, with a dividend yield of 19% compared to the Chemical - Diversified industry's yield of 42.34% and the S&P 500's yield of 0.16%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.52 is up 2.9% from last year. Huntsman has increased its dividend 30 times on a year-over-year basis over the last 5 years for an average annual increase of 1%. 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. Huntsman's current payout ratio is -16.19%. This means it paid out -16.19% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HUN expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $0.65 per share, which represents a year-over-year growth rate of 3.64%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. With that in mind, HUN presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).