All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 tha t 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 27.33% since the start of the year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 2.63%. In comparison, the Semiconductor Equipment - Wafer Fabrication industry's yield is 2.07%, while the S&P 500's yield is 1.97%.
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%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. KLA-Tencor's current payout ratio is 33%, meaning 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%.
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.
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, 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).