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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Scotts Miracle-Gro in Focus
Scotts Miracle-Gro (SMG - Free Report) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of 62.64% since the start of the 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 2.32% compared to the Fertilizers industry's yield of 1.29% and the S&P 500's yield of 1.81%.
Looking at dividend growth, the company's current annualized dividend of $2.32 is up 8.4% from last year. Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.37%. 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. Scotts's current payout ratio is 52%. This means it paid out 52% 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 $5.02 per share, which represents a year-over-year growth rate of 12.30%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, SMG 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).