Why KLA-Tencor (KLAC) is a Great Dividend Stock Right Now
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
KLA-Tencor in Focus
KLA-Tencor (KLAC) is headquartered in Milpitas, and is in the Computer and Technology sector. The stock has seen a price change of 31.97% since the start of the year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 2.54%. In comparison, the Semiconductor Equipment - Wafer Fabrication industry's yield is 2.01%, while the S&P 500's yield is 1.98%.
Looking at dividend growth, the company's current annualized dividend of $3 is up 19% from last year. Over the last 5 years, KLA-Tencor has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.61%. 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, KLA-Tencor's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
KLAC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $8.44 per share, representing a year-over-year earnings growth rate of 5.50%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, KLAC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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