Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Snap-On in Focus
Snap-On (SNA) is headquartered in Kenosha, and is in the Consumer Discretionary sector. The stock has seen a price change of 43.44% since the start of the year. Currently paying a dividend of $1.23 per share, the company has a dividend yield of 2%. In comparison, the Tools - Handheld industry's yield is 0.16%, while the S&P 500's yield is 1.27%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.92 is up 10.1% from last year. In the past five-year period, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.44%. 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. Snap-On's current payout ratio is 39%, meaning it paid out 39% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SNA for this fiscal year. The Zacks Consensus Estimate for 2021 is $13.43 per share, with earnings expected to increase 15.48% from the year ago period.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that SNA 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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SnapOn Incorporated (SNA) : Free Stock Analysis Report
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