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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Herman Miller in Focus
Herman Miller (MLHR - Free Report) is headquartered in Zeeland, and is in the Business Services sector. The stock has seen a price change of -15.98% since the start of the year. The furniture maker is paying out a dividend of $0.2 per share at the moment, with a dividend yield of 2.33% compared to the Business - Office Products industry's yield of 2.72% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.79 is up 9.7% from last year. Over the last 5 years, Herman Miller has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.46%. 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, Herman Miller's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MLHR for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.70 per share, representing a year-over-year earnings growth rate of 17.39%.
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. 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, MLHR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).