Why Spartan Stores (SPTN) is a Top Dividend Stock for Your Portfolio

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.

Spartan Stores in Focus

Spartan Stores (SPTN) is headquartered in Grand Rapids, and is in the Retail-Wholesale sector. The stock has seen a price change of 24.46% since the start of the year. The grocery store operator and grocery distributor is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.62%. This compares to the Food - Natural Foods Products industry's yield of 1% and the S&P 500's yield of 1.56%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.84 is up 5% from last year. In the past five-year period, Spartan Stores has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.28%. 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%, meaning it paid out 42% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, SPTN expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $2.30 per share, which represents a year-over-year growth rate of 35.29%.

Bottom Line

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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SPTN 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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