Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Clorox in Focus
Headquartered in Oakland, Clorox (CLX) is a Consumer Staples stock that has seen a price change of 44.78% so far this year. Currently paying a dividend of $1.11 per share, the company has a dividend yield of 2%. In comparison, the Soap and Cleaning Materials industry's yield is 2.31%, while the S&P 500's yield is 1.69%.
Looking at dividend growth, the company's current annualized dividend of $4.44 is up 4.7% from last year. Clorox has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.36%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Clorox's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
CLX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.76 per share, which represents a year-over-year growth rate of 5.43%.
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.
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, CLX 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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