All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Carter's in Focus
Based in Atlanta, Carter's (CRI - Free Report) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 21.59%. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 2.02%. In comparison, the Shoes and Retail Apparel industry's yield is 1.04%, while the S&P 500's yield is 1.94%.
Taking a look at the company's dividend growth, its current annualized dividend of $2 is up 11.1% from last year. Over the last 5 years, Carter's has increased its dividend 4 times on a year-over-year basis for an average annual increase of 24.32%. 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. Carter's's current payout ratio is 28%, meaning it paid out 28% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CRI for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.68 per share, which represents a year-over-year growth rate of 6.20%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CRI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).