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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.
Capital Southwest in Focus
Based in Dallas, Capital Southwest (CSWC) is in the Finance sector, and so far this year, shares have seen a price change of 2.71%. Currently paying a dividend of $0.46 per share, the company has a dividend yield of 7.29%. In comparison, the Financial - Investment Management industry's yield is 3.36%, while the S&P 500's yield is 2.14%.
In terms of dividend growth, the company's current annualized dividend of $1.44 is up 45.5% from last year. In the past five-year period, Capital Southwest has increased its dividend 3 times on a year-over-year basis for an average annual increase of 61.76%. 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. Capital Southwest's current payout ratio is 115%, meaning it paid out 115% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CSWC for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.44 per share, with earnings expected to increase 42.57% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CSWC presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.