Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Kroger in Focus
Headquartered in Cincinnati, Kroger (KR - Free Report) is a Retail-Wholesale stock that has seen a price change of 9.56% so far this year. Currently paying a dividend of $0.16 per share, the company has a dividend yield of 2.02%. In comparison, the Retail - Supermarkets industry's yield is 1.72%, while the S&P 500's yield is 2.14%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.64 is up 6.7% from last year. Over the last 5 years, Kroger has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.42%. 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. Right now, Kroger's payout ratio is 29%, which means it paid out 29% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KR expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $2.47 per share, which represents a year-over-year growth rate of 12.27%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that KR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).