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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Avery Dennison in Focus
Headquartered in Glendale, Avery Dennison (AVY - Free Report) is an Industrial Products stock that has seen a price change of -26.04% so far this year. The maker of office products is paying out a dividend of $0.58 per share at the moment, with a dividend yield of 2.4% compared to the Office Supplies industry's yield of 3.17% and the S&P 500's yield of 2.52%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.32 is up 2.7% from last year. In the past five-year period, Avery Dennison has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.67%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Avery Dennison's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AVY for this fiscal year. The Zacks Consensus Estimate for 2020 is $6.92 per share, with earnings expected to increase 4.85% 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. 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, AVY 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).