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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Spartan Stores in Focus
Based in Grand Rapids, Spartan Stores (SPTN) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 15.68%. Currently paying a dividend of $0.21 per share, the company has a dividend yield of 2.82%. In comparison, the Food - Natural Foods Products industry's yield is 1.28%, while the S&P 500's yield is 1.75%.
In terms of dividend growth, the company's current annualized dividend of $0.84 is up 5% from last year. Over the last 5 years, Spartan Stores has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.44%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Spartan Stores's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
SPTN is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $2.26 per share, representing a year-over-year earnings growth rate of 32.94%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. 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 SPTN is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).