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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Dick's Sporting Goods in Focus
Headquartered in Coraopolis, Dick's Sporting Goods (DKS - Free Report) is a Retail-Wholesale stock that has seen a price change of 17.72% so far this year. The sporting goods retailer is currently shelling out a dividend of $0.28 per share, with a dividend yield of 2.99%. This compares to the Retail - Miscellaneous industry's yield of 0.61% and the S&P 500's yield of 2.02%.
Looking at dividend growth, the company's current annualized dividend of $1.10 is up 22.2% from last year. In the past five-year period, Dick's Sporting Goods has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.29%. 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. Right now, Dick's's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
DKS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.33 per share, which represents a year-over-year growth rate of 2.78%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. Income investors must be conscious 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 DKS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).