All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Kohl's in Focus
Headquartered in Menomonee Falls, Kohl's (KSS - Free Report) is a Retail-Wholesale stock that has seen a price change of 34.33% so far this year. The department store operator is currently shelling out a dividend of $0.61 per share, with a dividend yield of 3.35%. This compares to the Retail - Regional Department Stores industry's yield of 0.52% and the S&P 500's yield of 1.77%.
In terms of dividend growth, the company's current annualized dividend of $2.44 is up 10.9% from last year. Kohl's has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.14%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Kohl's's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
KSS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.45 per share, representing a year-over-year earnings growth rate of 30.07%.
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.
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. 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 KSS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).