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 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.
RPM International in Focus
Headquartered in Medina, RPM International (RPM - Free Report) is a Construction stock that has seen a price change of 10.59% so far this year. The specialty chemicals company is currently shelling out a dividend of $0.35 per share, with a dividend yield of 2.42%. This compares to the Paints and Related Products industry's yield of 0.94% and the S&P 500's yield of 2.16%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.40 is up 11.1% from last year. RPM International has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.16%. 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. RPM International's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RPM for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.96 per share, representing a year-over-year earnings growth rate of 18.40%.
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.
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. 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 RPM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).