WWhether through stocks, bonds, ETFs or other types of securities, all investors love to see their portfolios generate big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary goal.
While cash flow can come from bond interest or interest from other types of investments, income investors focus on dividends. A dividend is the distribution of a company’s profits paid to shareholders; it is often viewed by its dividend yield, a measure that measures a dividend as a percentage of the current stock price. Numerous academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Snap-On at a glance
Kenosha-based Snap-On (SNA) is in the consumer discretionary sector, and so far this year stocks have seen a price change of 42.82%. The maker of diagnostic tools and equipment currently pays a dividend of $ 1.23 per share, with a dividend yield of 2.01%. This compares to the Tools – Handheld industry return of 0.07% and the S&P 500 return of 1.29%.
Looking at the company’s dividend growth, its current annualized dividend of $ 4.92 is up 10.1% from a year ago. Snap-On has increased its dividend 5 times year over year over the past 5 years for an average annual increase of 15.44%. Future dividend growth will depend on earnings growth as well as the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as dividends. Right now, Snap-On’s payout ratio is 39%, which means it has paid out 39% of its past 12-month EPS as a dividend.
The SNA also expects an increase in profits during this fiscal year. Zacks’ consensus estimate for 2021 is $ 13.50 per share, with earnings expected to rise 16.08% year-over-year.
Whether it’s dramatically improving earnings from equity investments and reducing overall portfolio risk or offering tax benefits, investors love dividends for a variety of reasons. But not all companies offer quarterly payment.
High-growth companies or tech start-ups, for example, rarely pay a dividend to their shareholders, while larger, more established companies with safer earnings are often seen as the best dividend options. Income investors should be aware that high yielding stocks tend to struggle during times of rising interest rates. That said, they can be reassured that SNA is not only an attractive dividend game, but also represents a compelling investment opportunity with a Zacks ranking of # 1 (strong buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.