All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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
Steelcase (SCS - Free Report) is headquartered in Grand Rapids, and is in the Business Services sector. The stock has seen a price change of 18.81% since the start of the year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.29%. In comparison, the Business - Office Products industry's yield is 2.73%, while the S&P 500's yield is 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.58 is up 7.4% from last year. Steelcase has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.53%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company'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.
Looking at this fiscal year, SCS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.35 per share, with earnings expected to increase 12.50% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. That said, they can take comfort from the fact that SCS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).