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 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.
Rockwell Automation in Focus
Headquartered in Milwaukee, Rockwell Automation (ROK - Free Report) is an Industrial Products stock that has seen a price change of -33.35% so far this year. The industrial equipment and software maker is paying out a dividend of $1.02 per share at the moment, with a dividend yield of 3.02% compared to the Industrial Automation and Robotics industry's yield of 0.79% and the S&P 500's yield of 2.67%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.08 is up 5.2% from last year. Over the last 5 years, Rockwell Automation has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.41%. 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. Rockwell Automation's current payout ratio is 48%. This means it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ROK expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $8.73 per share, representing a year-over-year earnings growth rate of 0.69%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ROK 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).