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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Kaiser Aluminum in Focus
Based in Foothill Ranch, Kaiser Aluminum is in the Industrial Products sector, and so far this year, shares have seen a price change of 9.32%. The aluminum products company is currently shelling out a dividend of $0.6 per share, with a dividend yield of 2.46%. This compares to the Metal Products - Procurement and Fabrication industry's yield of 0.41% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.40 is up 9.1% from last year. Kaiser Aluminum has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.69%. 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. Right now, Kaiser's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KALU expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.14 per share, with earnings expected to increase 10.36% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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, KALU 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).