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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Kohl's in Focus
Kohl's (KSS - Free Report) is headquartered in Menomonee Falls, and is in the Retail-Wholesale sector. The stock has seen a price change of 7.18% since the start of the year. Currently paying a dividend of $0.67 per share, the company has a dividend yield of 3.77%. In comparison, the Retail - Regional Department Stores industry's yield is 0.66%, while the S&P 500's yield is 1.86%.
In terms of dividend growth, the company's current annualized dividend of $2.68 is up 9.8% from last year. In the past five-year period, Kohl's has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.83%. 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. Kohl's's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KSS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.05 per share, which represents a year-over-year growth rate of 8.04%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. That said, they can take comfort from the fact that KSS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).