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.
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.
Herman Miller in Focus
Headquartered in Zeeland, Herman Miller is a Business Services stock that has seen a price change of 37.92% so far this year. The furniture maker is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 2.01% compared to the Business - Office Products industry's yield of 2.47% and the S&P 500's yield of 1.78%.
Looking at dividend growth, the company's current annualized dividend of $0.84 is up 6.3% from last year. In the past five-year period, Herman Miller has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.23%. 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, Herman Miller's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MLHR for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.40 per share, representing a year-over-year earnings growth rate of 14.48%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MLHR 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).