All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Whirlpool in Focus
Whirlpool (WHR - Free Report) is headquartered in Benton Harbor, and is in the Consumer Discretionary sector. The stock has seen a price change of 48.18% since the start of the year. Currently paying a dividend of $1.2 per share, the company has a dividend yield of 3.03%. In comparison, the Household Appliances industry's yield is 1.39%, while the S&P 500's yield is 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.80 is up 5.5% from last year. In the past five-year period, Whirlpool has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.26%. 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. Whirlpool's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WHR expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $15.20 per share, with earnings expected to increase 0.26% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that WHR is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).