Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Albemarle in Focus
Based in Charlotte, Albemarle (ALB - Free Report) is in the Basic Materials sector, and so far this year, shares have seen a price change of -4.72%. The specialty chemicals company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 2% compared to the Chemical - Diversified industry's yield of 2% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.47 is up 9.7% from last year. Over the last 5 years, Albemarle has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.32%. 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. Albemarle's current payout ratio is 27%, meaning it paid out 27% of its trailing 12-month EPS as dividend.
ALB is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.24 per share, with earnings expected to increase 13.87% 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. 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. With that in mind, ALB 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).