Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Albemarle in Focus
Albemarle (ALB - Free Report) is headquartered in Charlotte, and is in the Basic Materials sector. The stock has seen a price change of -12.9% since the start of the year. The specialty chemicals company is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 2.19% compared to the Chemical - Diversified industry's yield of 2.13% and the S&P 500's yield of 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.47 is up 9.7% from last year. Over the last 5 years, Albemarle has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.70%. 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. Right now, Albemarle's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ALB for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.36 per share, with earnings expected to increase 16.06% 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.
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, ALB 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).