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Why Steelcase (SCS) is a Top Dividend Stock for Your Portfolio

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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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Steelcase in Focus

Based in Grand Rapids, Steelcase (SCS - Free Report) is in the Business Services sector, and so far this year, shares have seen a price change of 25.83%. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.11%. In comparison, the Business - Office Products industry's yield is 2.61%, while the S&P 500's yield is 1.9%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.58 is up 7.4% from last year. In the past five-year period, Steelcase has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.53%. 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. Steelcase's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.

SCS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.35 per share, which represents a year-over-year growth rate of 12.50%.

Bottom Line

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.

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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SCS 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).


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