Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sonoco in Focus
Headquartered in Hartsville, Sonoco (SON - Free Report) is an Industrial Products stock that has seen a price change of 5.21% so far this year. The packaging maker is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.08%. This compares to the Containers - Paper and Packaging industry's yield of 2.55% and the S&P 500's yield of 1.95%.
In terms of dividend growth, the company's current annualized dividend of $1.72 is up 6.2% from last year. Sonoco has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.04%. 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. Sonoco's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
SON is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.57 per share, with earnings expected to increase 5.93% from the year ago period.
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, SON 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).