All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Scotts Miracle-Gro in Focus
Headquartered in Marysville, Scotts Miracle-Gro (SMG - Free Report) is a Basic Materials stock that has seen a price change of 68.71% so far this year. The lawn and garden products company is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.24% compared to the Fertilizers industry's yield of 1.19% and the S&P 500's yield of 1.85%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.32 is up 8.4% from last year. Over the last 5 years, Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.37%. 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. Scotts's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SMG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.91 per share, with earnings expected to increase 9.84% 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. It's important to keep in mind that not all companies provide 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 SMG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).