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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Cabot in Focus
Based in Boston, Cabot (CBT) is in the Basic Materials sector, and so far this year, shares have seen a price change of 12.27%. Currently paying a dividend of $0.4 per share, the company has a dividend yield of 2.13%. In comparison, the Chemical – Diversified industry’s yield is 2.06%, while the S&P 500’s yield is 1.7%.
In terms of dividend growth, the company’s current annualized dividend of $1.60 is up 3.9% from last year. Over the last 5 years, Cabot has increased its dividend 3 times on a year-over-year basis for an average annual increase of 3.13%. 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. Right now, Cabot’s payout ratio is 30%, which means it paid out 30% of its trailing 12-month EPS as dividend.
CBT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $6.45 per share, which represents a year-over-year growth rate of 19.89%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It’s important to keep in mind that not all companies provide 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, CBT 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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