All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 tha t dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Mueller Water Products in Focus
Based in Atlanta, Mueller Water Products (MWA) is in the Industrial Products sector, and so far this year, shares have seen a price change of 2.64%. The maker of fire hydrants, pipes and water valves is currently shelling out a dividend of $0.05 per share, with a dividend yield of 2.14%. This compares to the Steel - Pipe and Tube industry's yield of 0.63% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.20 is up 5.3% from last year. Mueller Water Products has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 31.90%. 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. Mueller Water Products's current payout ratio is 37%. This means it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MWA expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $0.62 per share, representing a year-over-year earnings growth rate of 16.98%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 MWA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).