L3Harris (LHX) is a Top Dividend Stock Right Now: Should You Buy?

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 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 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) is in the Aerospace sector, and so far this year, shares have seen a price change of -14.18%. The technology and communications company is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 2% compared to the Aerospace - Defense industry's yield of 0.01% and the S&P 500's yield of 1.61%.

Looking at 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 13.11%. 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. L3Harris's current payout ratio is 31%, meaning it paid out 31% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, LHX expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $11.43 per share, which represents a year-over-year growth rate of 13.39%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).

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