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.
Hillenbrand in Focus
Headquartered in Batesville, Hillenbrand (HI - Free Report) is a Consumer Staples stock that has seen a price change of 0.81% so far this year. The diversified industrial company specializing in business-to-business products is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.53%. This compares to the Funeral Services industry's yield of 1.56% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $0.85 is up 1.2% from last year. Over the last 5 years, Hillenbrand has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.18%. 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. Hillenbrand's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HI expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2.63 per share, with earnings expected to increase 7.35% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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, HI 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).