Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Rockwell Automation in Focus
Based in Milwaukee, Rockwell Automation (ROK - Free Report) is in the Industrial Products sector, and so far this year, shares have seen a price change of 34.68%. Currently paying a dividend of $1.02 per share, the company has a dividend yield of 2.01%. In comparison, the Industrial Automation and Robotics industry's yield is 0.51%, while the S&P 500's yield is 1.78%.
In terms of dividend growth, the company's current annualized dividend of $4.08 is up 5.2% from last year. Rockwell Automation has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.13%. 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. Rockwell Automation'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, ROK expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $8.93 per share, representing a year-over-year earnings growth rate of 3%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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 ROK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).