Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. 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.
Eaton in Focus
Eaton (ETN) is headquartered in Dublin, and is in the Industrial Products sector. The stock has seen a price change of -19.88% since the start of the year. Currently paying a dividend of $0.81 per share, the company has a dividend yield of 2.34%. In comparison, the Manufacturing – Electronics industry’s yield is 0.97%, while the S&P 500’s yield is 1.69%.
Looking at dividend growth, the company’s current annualized dividend of $3.24 is up 6.6% from last year. Over the last 5 years, Eaton has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.57%. 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, Eaton’s payout ratio is 47%, which means it paid out 47% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ETN for this fiscal year. The Zacks Consensus Estimate for 2022 is $7.55 per share, which represents a year-over-year growth rate of 14.05%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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, ETN 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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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
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