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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Carter's in Focus
Carter's (CRI - Free Report) is headquartered in Atlanta, and is in the Consumer Discretionary sector. The stock has seen a price change of 14.67% since the start of the year. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 2.14%. In comparison, the Shoes and Retail Apparel industry's yield is 1.01%, while the S&P 500's yield is 1.86%.
In terms of dividend growth, the company's current annualized dividend of $2 is up 11.1% from last year. Over the last 5 years, Carter's has increased its dividend 5 times on a year-over-year basis for an average annual increase of 23.81%. 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. Carter's's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CRI for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.64 per share, with earnings expected to increase 5.56% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, CRI 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).