All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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
Headquartered in Foothill Ranch, Kaiser Aluminum is an Industrial Products stock that has seen a price change of 6.42% so far this year. The aluminum products company is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.53% compared to the Metal Products - Procurement and Fabrication industry's yield of 0.75% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its 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%. 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. Kaiser's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KALU expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.20 per share, representing a year-over-year earnings growth rate of 11.28%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, KALU 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).