Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
KLA-Tencor in Focus
KLA-Tencor (KLAC) is headquartered in Milpitas, and is in the Computer and Technology sector. The stock has seen a price change of 3.83% since the start of the year. The maker of equipment for manufacturing semiconductors is paying out a dividend of $0.75 per share at the moment, with a dividend yield of 3.23% compared to the Semiconductor Equipment - Wafer Fabrication industry's yield of 2.3% and the S&P 500's yield of 1.99%.
In terms of dividend growth, the company's current annualized dividend of $3 is up 19% from last year. Over the last 5 years, KLA-Tencor has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.61%. 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. KLA-Tencor's current payout ratio is 35%. This means it paid out 35% of its trailing 12-month EPS as dividend.
KLAC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $9.11 per share, which represents a year-over-year growth rate of 13.88%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. With that in mind, KLAC 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).
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