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.
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.
Gorman-Rupp in Focus
Headquartered in Mansfield, Gorman-Rupp (GRC) is an Industrial Products stock that has seen a price change of 1.24% so far this year. The pump maker is currently shelling out a dividend of $0.18 per share, with a dividend yield of 2%. This compares to the Manufacturing - General Industrial industry's yield of 0.17% and the S&P 500's yield of 1.62%.
In terms of dividend growth, the company's current annualized dividend of $0.72 is up 2.1% from last year. In the past five-year period, Gorman-Rupp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.48%. 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. Right now, Gorman-Rupp's payout ratio is 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, GRC expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $1.66 per share, which represents a year-over-year growth rate of 21.17%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 GRC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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