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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Clorox in Focus
Based in Oakland, Clorox (CLX - Free Report) is in the Consumer Staples sector, and so far this year, shares have seen a price change of 2.37%. The consumer products maker is paying out a dividend of $0.96 per share at the moment, with a dividend yield of 2.52% compared to the Soap and Cleaning Materials industry's yield of 2.21% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.84 is up 10.3% from last year. In the past five-year period, Clorox has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.56%. 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, Clorox's payout ratio is 67%, which means it paid out 67% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CLX for this fiscal year. The Zacks Consensus Estimate for 2018 is $6.41 per share, representing a year-over-year earnings growth rate of 2.40%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 CLX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).