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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Hillenbrand in Focus
Based in Batesville, Hillenbrand (HI) is in the Consumer Staples sector, and so far this year, shares have seen a price change of -19%. Currently paying a dividend of $0.22 per share, the company has a dividend yield of 2.07%. In comparison, the Funeral Services industry's yield is 1.71%, while the S&P 500's yield is 1.63%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.87 is up 1.2% from last year. In the past five-year period, Hillenbrand has increased its dividend 5 times on a year-over-year basis for an average annual increase of 1.22%. 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, Hillenbrand's payout ratio is 23%, which means it paid out 23% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HI expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.90 per share, with earnings expected to increase 2.90% 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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HI 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).