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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
National Instruments in Focus
Headquartered in Austin, National Instruments (NATI) is a Computer and Technology stock that has seen a price change of 5.24% so far this year. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2.1%. In comparison, the Electronics – Testing Equipment industry's yield is 0.56%, while the S&P 500's yield is 1.77%.
Looking at dividend growth, the company's current annualized dividend of $0.92 is up 9.5% from last year. Over the last 5 years, National Instruments has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.05%. 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. National Instruments's current payout ratio is 84%. This means it paid out 84% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NATI expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.43 per share, representing a year-over-year earnings growth rate of 52.13%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 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 NATI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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