Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 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
Scotts Miracle-Gro (SMG - Free Report) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of 45.43% since the start of the year. The lawn and garden products company is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.46%. This compares to the Fertilizers industry's yield of 0.32% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $2.20 is up 2.8% from last year. Over the last 5 years, Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.28%. 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. Scotts's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SMG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.25 per share, with earnings expected to increase 14.56% from the year ago period.
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 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).