Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Applied Materials in Focus
Based in Santa Clara, Applied Materials (AMAT - Free Report) is in the Computer and Technology sector, and so far this year, shares have seen a price change of -33.6%. Currently paying a dividend of $0.21 per share, the company has a dividend yield of 2.07%. In comparison, the Semiconductor Equipment - Wafer Fabrication industry's yield is 1.21%, while the S&P 500's yield is 2.63%.
Looking at dividend growth, the company's current annualized dividend of $0.84 is up 2.4% from last year. Over the last 5 years, Applied Materials has increased its dividend 2 times on a year-over-year basis for an average annual increase of 19.77%. 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, Applied Materials's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AMAT for this fiscal year. The Zacks Consensus Estimate for 2020 is $4.14 per share, with earnings expected to increase 36.18% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AMAT presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).