Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Stanley Black & Decker in Focus
Based in New Britain, Stanley Black & Decker (SWK - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 15.49%. The tool company is currently shelling out a dividend of $0.69 per share, with a dividend yield of 2%. This compares to the Manufacturing - Tools & Related Products industry's yield of 1.96% and the S&P 500's yield of 1.9%.
In terms of dividend growth, the company's current annualized dividend of $2.76 is up 7% from last year. Over the last 5 years, Stanley Black & Decker has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.07%. 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. Stanley Black & Decker's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
SWK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.58 per share, representing a year-over-year earnings growth rate of 5.28%.
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.
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. 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, SWK 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).