All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Tiffany in Focus
Based in New York, Tiffany (TIF - Free Report) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 15.43%. The luxury jeweler is currently shelling out a dividend of $0.58 per share, with a dividend yield of 2.5%. This compares to the Retail - Jewelry industry's yield of 0.65% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $2.32 is up 7.9% from last year. Tiffany has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.13%. 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. Tiffany's current payout ratio is 48%. This means it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TIF expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.88 per share, with earnings expected to increase 5.63% 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. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TIF 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).