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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Scotts Miracle-Gro in Focus
Scotts Miracle-Gro (SMG) is headquartered in Marysville, and is in the Basic Materials sector. The stock has seen a price change of 9.78% since the start of the year. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 3.26%. In comparison, the Fertilizers industry's yield is 0.1%, while the S&P 500's yield is 2.01%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 2.8% from last year. Scotts Miracle-Gro has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.27%. 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. Scotts's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SMG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $4.18 per share, with earnings expected to increase 12.67% 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. However, not all companies offer 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 have to be mindful 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 SMG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).