All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Mueller Water Products in Focus
Headquartered in Atlanta, Mueller Water Products (MWA - Free Report) is an Industrial Products stock that has seen a price change of -13.44% so far this year. Currently paying a dividend of $0.05 per share, the company has a dividend yield of 2.03%. In comparison, the Steel - Pipe and Tube industry's yield is 0.65%, while the S&P 500's yield is 2.18%.
In terms of dividend growth, the company's current annualized dividend of $0.21 is up 3.4% from last year. Mueller Water Products has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 28.64%. 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. Right now, Mueller Water Products's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MWA expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $0.63 per share, which represents a year-over-year growth rate of 3.28%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MWA 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).