Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sysco in Focus
Headquartered in Houston, Sysco (SYY - Free Report) is a Consumer Staples stock that has seen a price change of -54.43% so far this year. The food distributor is currently shelling out a dividend of $0.45 per share, with a dividend yield of 4.62%. This compares to the Food - Miscellaneous industry's yield of 0.33% and the S&P 500's yield of 2.52%.
Looking at dividend growth, the company's current annualized dividend of $1.80 is up 20% from last year. Sysco has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.70%. 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. Sysco's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SYY expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $3.79 per share, representing a year-over-year earnings growth rate of 6.76%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SYY 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).