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 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.
Kellogg in Focus
Headquartered in Battle Creek, Kellogg (K - Free Report) is a Consumer Staples stock that has seen a price change of -8.24% so far this year. The maker of Frosted Flakes, Pop Tarts and Eggo waffles is currently shelling out a dividend of $0.57 per share, with a dividend yield of 3.59%. This compares to the Food - Miscellaneous industry's yield of 0.26% and the S&P 500's yield of 1.75%.
Looking at dividend growth, the company's current annualized dividend of $2.28 is up 0.9% from last year. Over the last 5 years, Kellogg has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.52%. 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. Kellogg's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
K is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.02 per share, which represents a year-over-year growth rate of 2.03%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 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 K is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).