All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 21.19%. The packaging maker is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 2.67% compared to the Containers - Paper and Packaging industry's yield of 2.28% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.72 is up 6.2% from last year. In the past five-year period, Sonoco has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.98%. 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. Right now, Sonoco's payout ratio is 47%, which means it paid out 47% of its trailing 12-month EPS as dividend.
SON is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.58 per share, representing a year-over-year earnings growth rate of 6.23%.
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, 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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Sonoco Products Company (SON) : Free Stock Analysis Report
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