All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Kohl's in Focus
Headquartered in Menomonee Falls, Kohl's (KSS - Free Report) is a Retail-Wholesale stock that has seen a price change of -3.87% so far this year. The department store operator is paying out a dividend of $0.67 per share at the moment, with a dividend yield of 4.2% compared to the Retail - Regional Department Stores industry's yield of 0.69% and the S&P 500's yield of 1.95%.
Looking at dividend growth, the company's current annualized dividend of $2.68 is up 9.8% from last year. Over the last 5 years, Kohl's has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.12%. Future dividend growth will depend on earnings growth as well as 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.
KSS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.04 per share, representing a year-over-year earnings growth rate of 7.86%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, KSS 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).