Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Sonoco in Focus
Based in Hartsville, Sonoco (SON) is in the Industrial Products sector, and so far this year, shares have seen a price change of 7.66%. The packaging maker is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.01%. This compares to the Containers – Paper and Packaging industry’s yield of 2.66% and the S&P 500’s yield of 1.96%.
Looking at dividend growth, the company’s current annualized dividend of $1.72 is up 6.2% from last year. Sonoco has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.04%. 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. Sonoco’s current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SON for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.57 per share, representing a year-over-year earnings growth rate of 5.93%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SON is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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