All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Mueller Water Products in Focus
Based in Atlanta, Mueller Water Products (MWA - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 0.99%. The maker of fire hydrants, pipes and water valves is paying out a dividend of $0.05 per share at the moment, with a dividend yield of 2.18% compared to the Steel - Pipe and Tube industry's yield of 0.69% and the S&P 500's yield of 2.12%.
Looking at dividend growth, the company's current annualized dividend of $0.20 is up 5.3% from last year. In the past five-year period, Mueller Water Products has increased its dividend 4 times on a year-over-year basis for an average annual increase of 30.82%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Mueller Water Products's current payout ratio is 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MWA expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $0.63 per share, with earnings expected to increase 18.87% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MWA 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).