All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Dover in Focus
Headquartered in Downers Grove, Dover (DOV - Free Report) is an Industrial Products stock that has seen a price change of -18.05% so far this year. The manufacturer is currently shelling out a dividend of $0.48 per share, with a dividend yield of 2.32%. This compares to the Manufacturing - General Industrial industry's yield of 0.53% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $1.92 is up 5.5% from last year. In the past five-year period, Dover has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.46%. 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, Dover's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, DOV expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $4.82 per share, representing a year-over-year earnings growth rate of 19.60%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that DOV is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).