Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 4.6% 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 2.5% compared to the Business - Office Products industry's yield of 3.24% and the S&P 500's yield of 2.12%.
In terms of dividend growth, the company's current annualized dividend of $0.79 is up 9.7% from last year. Herman Miller has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.46%. 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. Herman Miller's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.
MLHR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.73 per share, representing a year-over-year earnings growth rate of 18.70%.
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.
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. That said, they can take comfort from the fact that MLHR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).