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 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.
Whirlpool in Focus
Based in Benton Harbor, Whirlpool (WHR - Free Report) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 16.46%. The maker of Maytag, KitchenAid and other appliances is currently shelling out a dividend of $1.15 per share, with a dividend yield of 3.7%. This compares to the Household Appliances industry's yield of 1.26% and the S&P 500's yield of 2%.
In terms of dividend growth, the company's current annualized dividend of $4.60 is up 1.1% from last year. Over the last 5 years, Whirlpool has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.28%. 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. Right now, Whirlpool's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WHR expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $16.18 per share, representing a year-over-year earnings growth rate of 6.73%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WHR 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).