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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Air Products and Chemicals in Focus
Air Products and Chemicals (APD - Free Report) is headquartered in Allentown, and is in the Basic Materials sector. The stock has seen a price change of -3.83% since the start of the year. The seller of gases for industrial, medical and other uses is paying out a dividend of $1.16 per share at the moment, with a dividend yield of 2.05% compared to the Chemical - Diversified industry's yield of 1.74% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $4.64 is up 1.3% from last year. In the past five-year period, Air Products and Chemicals has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.89%. 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. Air Products and Chemicals's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for APD for this fiscal year. The Zacks Consensus Estimate for 2020 is $9.48 per share, representing a year-over-year earnings growth rate of 15.47%.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, APD presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).