Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Lincoln Electric Holdings in Focus
Headquartered in Cleveland, Lincoln Electric Holdings (LECO - Free Report) is an Industrial Products stock that has seen a price change of -1.74% so far this year. The manufacturer of specialized welding products and other equipment is paying out a dividend of $0.47 per share at the moment, with a dividend yield of 2.43% compared to the Manufacturing - Tools & Related Products industry's yield of 1.78% and the S&P 500's yield of 1.95%.
Looking at dividend growth, the company's current annualized dividend of $1.88 is up 14.6% from last year. In the past five-year period, Lincoln Electric Holdings has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.25%. 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. Lincoln Electric's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LECO for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.22 per share, which represents a year-over-year growth rate of 8.30%.
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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, LECO 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).