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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Kohl's in Focus
Headquartered in Menomonee Falls, Kohl's (KSS) is a Retail-Wholesale stock that has seen a price change of 34.32% so far this year. Currently paying a dividend of $0.61 per share, the company has a dividend yield of 3.35%. In comparison, the Retail - Regional Department Stores industry's yield is 0.47%, while the S&P 500's yield is 1.8%.
In terms of dividend growth, the company's current annualized dividend of $2.44 is up 10.9% from last year. In the past five-year period, Kohl's has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.73%. 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. Kohl's's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KSS expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $5.38 per share, representing a year-over-year earnings growth rate of 28.40%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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 KSS 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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