Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 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.
PolyOne in Focus
PolyOne (POL - Free Report) is headquartered in Avon Lake, and is in the Basic Materials sector. The stock has seen a price change of -60.4% since the start of the year. The maker of resins used in plastic pipe and other products is currently shelling out a dividend of $0.2 per share, with a dividend yield of 5.56%. This compares to the Chemical - Plastic industry's yield of 1.57% and the S&P 500's yield of 2.79%.
Looking at dividend growth, the company's current annualized dividend of $0.81 is up 2.9% from last year. PolyOne has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 17.83%. 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. PolyOne's current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
POL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $1.80 per share, with earnings expected to increase 6.51% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 POL is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).