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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Sysco in Focus
Headquartered in Houston, Sysco (SYY - Free Report) is a Consumer Staples stock that has seen a price change of -1.03% so far this year. The food distributor is currently shelling out a dividend of $0.39 per share, with a dividend yield of 2.13%. This compares to the Food - Miscellaneous industry's yield of 0.22% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.80 is up 20% from last year. Sysco has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.41%. 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. Right now, Sysco's payout ratio is 43%, which means it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SYY for this fiscal year. The Zacks Consensus Estimate for 2020 is $3.82 per share, with earnings expected to increase 7.61% 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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, SYY 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).