Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Snap-On in Focus
Snap-On (SNA) is headquartered in Kenosha, and is in the Consumer Discretionary sector. The stock has seen a price change of 13.66% since the start of the year. Currently paying a dividend of $1.62 per share, the company has a dividend yield of 2.5%. In comparison, the Tools - Handheld industry's yield is 0.84%, while the S&P 500's yield is 1.74%.
Looking at dividend growth, the company's current annualized dividend of $6.48 is up 10.2% from last year. Over the last 5 years, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.80%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Snap-On's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
SNA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $17.74 per share, which represents a year-over-year growth rate of 5.47%.
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. That said, they can take comfort from the fact that SNA is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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