Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Kaiser Aluminum in Focus
Kaiser Aluminum is headquartered in Foothill Ranch, and is in the Industrial Products sector. The stock has seen a price change of 1.89% since the start of the year. The aluminum products company is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.64% compared to the Metal Products - Procurement and Fabrication industry's yield of 0.74% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $2.40 is up 9.1% from last year. Kaiser Aluminum has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.56%. 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. Kaiser's current payout ratio is 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for KALU for this fiscal year. The Zacks Consensus Estimate for 2019 is $7.20 per share, which represents a year-over-year growth rate of 11.28%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that KALU is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).