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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Rockwell Automation in Focus
Based in Milwaukee, Rockwell Automation (ROK - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of -23.71%. The industrial equipment and software maker is paying out a dividend of $0.97 per share at the moment, with a dividend yield of 2.59% compared to the Industrial Automation and Robotics industry's yield of 0.31% and the S&P 500's yield of 2.16%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.88 is up 10.5% from last year. In the past five-year period, Rockwell Automation has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.04%. 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. Rockwell Automation's current payout ratio is 45%. This means it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ROK for this fiscal year. The Zacks Consensus Estimate for 2018 is $9.03 per share, which represents a year-over-year growth rate of 11.34%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 have to be mindful 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 ROK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).