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.
Sonoco in Focus
Headquartered in Hartsville, Sonoco (SON - Free Report) is an Industrial Products stock that has seen a price change of 22.45% so far this year. The packaging maker is currently shelling out a dividend of $0.43 per share, with a dividend yield of 2.64%. This compares to the Containers - Paper and Packaging industry's yield of 2.31% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.72 is up 6.2% from last year. Sonoco has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.98%. 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. Sonoco's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SON expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.58 per share, which represents a year-over-year growth rate of 6.23%.
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.
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 SON is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).