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 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.
International Flavors in Focus
Based in New York, International Flavors (IFF - Free Report) is in the Basic Materials sector, and so far this year, shares have seen a price change of -9.22%. The ingredients producer for food, cosmetics and consumer products industries is currently shelling out a dividend of $0.73 per share, with a dividend yield of 2.11%. This compares to the Chemical - Specialty industry's yield of 0.29% and the S&P 500's yield of 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.92 is up 9.8% from last year. International Flavors has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.97%. 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. Right now, International Flavors's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for IFF for this fiscal year. The Zacks Consensus Estimate for 2018 is $6.31 per share, which represents a year-over-year growth rate of 7.13%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. 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, IFF 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).