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.
PolyOne in Focus
Based in Avon Lake, PolyOne (POL - Free Report) is in the Basic Materials sector, and so far this year, shares have seen a price change of 9.27%. The maker of resins used in plastic pipe and other products is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 2.5% compared to the Chemical - Plastic industry's yield of 2.49% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.78 is up 8.3% from last year. In the past five-year period, PolyOne has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.31%. 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. PolyOne's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, POL expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.50 per share, representing a year-over-year earnings growth rate of 2.88%.
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 have to be mindful 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 POL is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).