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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Scotts Miracle-Gro in Focus
Headquartered in Marysville, Scotts Miracle-Gro (SMG - Free Report) is a Basic Materials stock that has seen a price change of 51.22% so far this year. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 2.37%. In comparison, the Fertilizers industry's yield is 0.3%, while the S&P 500's yield is 1.9%.
Looking at dividend growth, the company's current annualized dividend of $2.20 is up 2.8% from last year. In the past five-year period, Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.28%. 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. Scotts's current payout ratio is 53%. This means it paid out 53% of its trailing 12-month EPS as dividend.
SMG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.25 per share, with earnings expected to increase 14.56% 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. But, not every company offers 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 have to be mindful 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 SMG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).