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.
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.
Lincoln Electric Holdings in Focus
Based in Cleveland, Lincoln Electric Holdings (LECO - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 12.11%. Currently paying a dividend of $0.47 per share, the company has a dividend yield of 2.13%. In comparison, the Manufacturing - Tools & Related Products industry's yield is 1.56%, while the S&P 500's yield is 1.89%.
Looking at dividend growth, the company's current annualized dividend of $1.88 is up 14.6% from last year. Over the last 5 years, Lincoln Electric Holdings has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.25%. 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. Lincoln Electric's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, LECO expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.22 per share, with earnings expected to increase 8.30% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LECO 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).