All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Timken in Focus
Timken (TKR - Free Report) is headquartered in North Canton, and is in the Industrial Products sector. The stock has seen a price change of 28.56% since the start of the year. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.33%. In comparison, the Metal Products - Procurement and Fabrication industry's yield is 0.41%, while the S&P 500's yield is 1.96%.
In terms of dividend growth, the company's current annualized dividend of $1.12 is up 0.9% from last year. Over the last 5 years, Timken has increased its dividend 3 times on a year-over-year basis for an average annual increase of 2.58%. 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. Timken's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TKR expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.29 per share, which represents a year-over-year growth rate of 26.56%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 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 TKR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).