Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Herman Miller in Focus
Headquartered in Zeeland, Herman Miller (MLHR - Free Report) is a Business Services stock that has seen a price change of 20% so far this year. The furniture maker is paying out a dividend of $0.2 per share at the moment, with a dividend yield of 2.18% compared to the Business - Office Products industry's yield of 2.91% and the S&P 500's yield of 1.96%.
In terms of dividend growth, the company's current annualized dividend of $0.79 is up 9.7% from last year. In the past five-year period, Herman Miller has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.37%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Herman Miller's current payout ratio is 30%. This means 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 $2.76 per share, which represents a year-over-year growth rate of 20%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MLHR presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).