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.
Applied Industrial Technologies in Focus
Based in Cleveland, Applied Industrial Technologies (AIT - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of -12.42%. The industrial products company is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.01%. This compares to the Manufacturing - General Industrial industry's yield of 0.54% and the S&P 500's yield of 1.98%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 1.7% from last year. Over the last 5 years, Applied Industrial Technologies has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.89%. 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, Applied Industrial Technologies's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
AIT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4.80 per share, which represents a year-over-year growth rate of 28.34%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, AIT presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).