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.
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.
Steelcase in Focus
Steelcase (SCS - Free Report) is headquartered in Grand Rapids, and is in the Business Services sector. The stock has seen a price change of 2.3% since the start of the year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.47%. In comparison, the Business - Office Products industry's yield is 2.72%, while the S&P 500's yield is 1.95%.
Looking at dividend growth, the company's current annualized dividend of $0.54 is up 5.9% from last year. Over the last 5 years, Steelcase has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.57%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Steelcase's payout ratio is 56%, which means it paid out 56% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SCS for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.12 per share, with earnings expected to increase 23.08% from the year ago period.
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.
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. With that in mind, SCS 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).