Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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.
International Flavors in Focus
International Flavors (IFF - Free Report) is headquartered in New York, and is in the Basic Materials sector. The stock has seen a price change of 8.49% since the start of the year. The ingredients producer for food, cosmetics and consumer products industries is currently shelling out a dividend of $0.73 per share, with a dividend yield of 2%. This compares to the Chemical - Specialty industry's yield of 0.57% and the S&P 500's yield of 1.91%.
Looking at dividend growth, the company's current annualized dividend of $2.92 is up 2.8% from last year. In the past five-year period, International Flavors has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.66%. 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. International Flavors's current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for IFF for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.31 per share, which represents a year-over-year growth rate of 0.48%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. With that in mind, IFF presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).