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 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.
Deere in Focus
Based in Moline, Deere (DE - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 1.27%. The agricultural equipment manufacturer is paying out a dividend of $0.76 per share at the moment, with a dividend yield of 2.01% compared to the Manufacturing - Farm Equipment industry's yield of 0.67% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.04 is up 17.8% from last year. In the past five-year period, Deere has increased its dividend 2 times on a year-over-year basis for an average annual increase of 3.81%. 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. Deere's current payout ratio is 31%. This means it paid out 31% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, DE expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $10.22 per share, which represents a year-over-year growth rate of 8.84%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. 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, DE 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).