Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
L3Harris in Focus
L3Harris (LHX - Free Report) is headquartered in Melbourne, and is in the Aerospace sector. The stock has seen a price change of -23.07% since the start of the year. The technology and communications company is currently shelling out a dividend of $0.85 per share, with a dividend yield of 2.23%. This compares to the Aerospace - Defense industry's yield of 1.47% and the S&P 500's yield of 2.63%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.40 is up 18.5% from last year. Over the last 5 years, L3Harris has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.47%. 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. Right now, L3Harris's payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
LHX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $11.61 per share, which represents a year-over-year growth rate of 15.18%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, LHX 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).