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.
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.
Honda Motor in Focus
Honda Motor (HMC) is headquartered in Tokyo, and is in the Auto-Tires-Trucks sector. The stock has seen a price change of -24% since the start of the year. Currently paying a dividend of $0.2 per share, the company has a dividend yield of 3.02%. In comparison, the Automotive - Foreign industry's yield is 1.5%, while the S&P 500's yield is 2.19%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.78 is up 36.8% from last year. Over the last 5 years, Honda Motor has increased its dividend 2 times on a year-over-year basis for an average annual increase of 0.08%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Honda's payout ratio is 20%, which means it paid out 20% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, HMC expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.72 per share, which represents a year-over-year growth rate of 2.76%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, HMC 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).