Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Eastman Chemical in Focus
Headquartered in Kingsport, Eastman Chemical (EMN) is a Basic Materials stock that has seen a price change of 8.91% so far this year. The specialty chemicals maker is currently shelling out a dividend of $0.56 per share, with a dividend yield of 2.22%. This compares to the Chemical – Diversified industry's yield of 1.62% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.24 is up 7.2% from last year. In the past five-year period, Eastman Chemical has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.10%. 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. Eastman Chemical's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.
EMN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $8.57 per share, with earnings expected to increase 12.61% from the year ago period.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EMN presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment