Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
VALE S.A. In Focus
Based in Rio De Janeiro, VALE S.A. (VALE) is in the Basic Materials sector, and so far this year, shares have seen a price change of -18.64%. Currently paying a dividend of $0.27 per share, the company has a dividend yield of 4.55%. In comparison, the Mining - Iron industry's yield is 1.44%, while the S&P 500's yield is 1.69%.
In terms of dividend growth, the company's current annualized dividend of $0.49 is up 120.7% from last year. VALE S.A. has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 27.49%. 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. VALE S.A.'s current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, VALE expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $1.74 per share, representing a year-over-year earnings growth rate of 8.75%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, VALE presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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