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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Rockwell Automation in Focus
Rockwell Automation (ROK - Free Report) is headquartered in Milwaukee, and is in the Industrial Products sector. The stock has seen a price change of 3.57% since the start of the year. Currently paying a dividend of $0.97 per share, the company has a dividend yield of 2.49%. In comparison, the Industrial Automation and Robotics industry's yield is 0.61%, while the S&P 500's yield is 2%.
In terms of dividend growth, the company's current annualized dividend of $3.88 is up 10.5% from last year. Over the last 5 years, Rockwell Automation has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.58%. 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. Rockwell Automation's current payout ratio is 45%. This means it paid out 45% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ROK expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $9.01 per share, with earnings expected to increase 11.10% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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, ROK 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).