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 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.
Dick's Sporting Goods in Focus
Headquartered in Coraopolis, Dick's Sporting Goods (DKS - Free Report) is a Retail-Wholesale stock that has seen a price change of 25.64% so far this year. The sporting goods retailer is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 2.81% compared to the Retail - Miscellaneous industry's yield of 0.28% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.10 is up 22.2% from last year. Dick's Sporting Goods has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 16.21%. 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, Dick's's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for DKS for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.38 per share, representing a year-over-year earnings growth rate of 4.32%.
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.
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, DKS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).