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This is Why Resources Connection (RECN) is a Great Dividend Stock

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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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Resources Connection in Focus

Based in Irvine, Resources Connection (RECN - Free Report) is in the Business Services sector, and so far this year, shares have seen a price change of 17.39%. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 3.12%. In comparison, the Staffing Firms industry's yield is 1.1%, while the S&P 500's yield is 1.98%.

Looking at dividend growth, the company's current annualized dividend of $0.52 is up 8.3% from last year. Over the last 5 years, Resources Connection has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.35%. 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. Resources Connection's current payout ratio is 53%. This means it paid out 53% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, RECN expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1 per share, which represents a year-over-year growth rate of 2.04%.

Bottom Line

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.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, RECN presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).


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