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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 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 10.82% 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 2.43% compared to the Metal Products - Procurement and Fabrication industry's yield of 0.69% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $2.40 is up 9.1% from last year. Over the last 5 years, Kaiser Aluminum has increased its dividend 5 times on a year-over-year basis 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. Right now, Kaiser's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
KALU is expecting earnings to expand this fiscal year as well. 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. 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. 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).