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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
PolyOne in Focus
Based in Avon Lake, PolyOne is in the Basic Materials sector, and so far this year, shares have seen a price change of 11.89%. The maker of resins used in plastic pipe and other products is currently shelling out a dividend of $0.19 per share, with a dividend yield of 2.44%. This compares to the Chemical - Plastic industry's yield of 2.49% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.78 is up 8.3% from last year. PolyOne has increased its dividend 5 times on a year-over-year basis over the last 5 years 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. Right now, PolyOne's payout ratio is 32%, which means it paid out 32% of its trailing 12-month EPS as dividend.
POL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.55 per share, which represents a year-over-year growth rate of 4.94%.
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.
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, POL presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).