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 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.
Crane in Focus
Crane (CR - Free Report) is headquartered in Stamford, and is in the Conglomerates sector. The stock has seen a price change of 7.72% since the start of the year. The maker of engineered industrial products is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 2.01% compared to the Diversified Operations industry's yield of 1.54% and the S&P 500's yield of 1.99%.
Looking at dividend growth, the company's current annualized dividend of $1.56 is up 11.4% from last year. Crane has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 2.69%. 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, Crane's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
CR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.39 per share, which represents a year-over-year growth rate of 6.68%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CR 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).