Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Timken in Focus
Based in North Canton, Timken (TKR) is in the Industrial Products sector, and so far this year, shares have seen a price change of 2.14%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.23%. In comparison, the Metal Products - Procurement and Fabrication industry's yield is 0.97%, while the S&P 500's yield is 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 4.7% from last year. Over the last 5 years, Timken has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.08%. 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. Timken's current payout ratio is 32%. This means it paid out 32% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TKR for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.17 per share, with earnings expected to increase 58.56% 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. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, TKR presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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