Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
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 22.18% since the start of the year. The office furniture maker is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 3.2% compared to the Business - Office Products industry's yield of 2.44% and the S&P 500's yield of 1.82%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.58 is up 7.4% from last year. Over the last 5 years, Steelcase has increased its dividend 5 times on a year-over-year basis 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%. This means 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 $1.36 per share, with earnings expected to increase 13.33% from the year ago period.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SCS 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).