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Are You Looking for a High-Growth Dividend Stock? Domtar (UFS) Could Be a Great Choice

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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.

Domtar in Focus

Domtar (UFS) is headquartered in Fort Mill, and is in the Basic Materials sector. The stock has seen a price change of -6.6% since the start of the year. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 3.76%. In comparison, the Paper and Related Products industry's yield is 1.34%, while the S&P 500's yield is 2%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.74 is up 4.8% from last year. Domtar has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.87%. 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. Domtar's current payout ratio is 54%. This means it paid out 54% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for UFS for this fiscal year. The Zacks Consensus Estimate for 2018 is $3.82 per share, which represents a year-over-year growth rate of 46.92%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, UFS 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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