Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
L3Harris in Focus
Based in Melbourne, L3Harris (LHX - Free Report) is in the Aerospace sector, and so far this year, shares have seen a price change of -14.97%. The technology and communications company is currently shelling out a dividend of $0.85 per share, with a dividend yield of 2.02%. This compares to the Aerospace - Defense industry's yield of 0.82% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $3.40 is up 18.5% from last year. L3Harris has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.59%. 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. L3Harris's current payout ratio is 32%, meaning it paid out 32% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LHX for this fiscal year. The Zacks Consensus Estimate for 2020 is $11.31 per share, with earnings expected to increase 12.20% 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. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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, LHX 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).