Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Hubbell in Focus
Hubbell (HUBB - Free Report) is headquartered in Shelton, and is in the Industrial Products sector. The stock has seen a price change of 28.77% since the start of the year. The electrical products manufacturer is paying out a dividend of $0.84 per share at the moment, with a dividend yield of 2.63% compared to the Manufacturing - Electrical Utilities industry's yield of 2.67% and the S&P 500's yield of 1.92%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.36 is up 6.7% from last year. Over the last 5 years, Hubbell has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.94%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Hubbell's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HUBB expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.09 per share, representing a year-over-year earnings growth rate of 10.97%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HUBB 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).