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

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Resources Connection in Focus

Headquartered in Irvine, Resources Connection (RECN - Free Report) is a Business Services stock that has seen a price change of 16.62% so far this year. The consulting company is currently shelling out a dividend of $0.13 per share, with a dividend yield of 3.14%. This compares to the Staffing Firms industry's yield of 1.27% and the S&P 500's yield of 1.92%.

Taking a look at the company's dividend growth, its 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 13.90%. 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%, meaning it paid out 53% of its trailing 12-month EPS as dividend.

RECN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1 per share, representing a year-over-year earnings growth rate of 2.04%.

Bottom Line

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.

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, RECN 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).


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