Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Resources Connection in Focus
Headquartered in Irvine, Resources Connection (RECN) is a Business Services stock that has seen a price change of 15.91% so far this year. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 3.16%. In comparison, the Staffing Firms industry's yield is 1.13%, while the S&P 500's yield is 1.99%.
In terms of dividend growth, the company's current annualized dividend of $0.52 is up 8.3% from last year. Resources Connection has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.35%. 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, Resources Connection's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, RECN expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1 per share, with earnings expected to increase 2.04% from the year ago period.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that RECN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).