All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. 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.
SQM in Focus
SQM (SQM) is headquartered in Santiago, and is in the Basic Materials sector. The stock has seen a price change of -30.03% since the start of the year. Currently paying a dividend of $0.33 per share, the company has a dividend yield of 3.14%. In comparison, the Fertilizers industry’s yield is 0.1%, while the S&P 500’s yield is 1.93%.
Taking a look at the company’s dividend growth, its current annualized dividend of $1.30 is up 11.2% from last year. In the past five-year period, SQM has increased its dividend 2 times on a year-over-year basis for an average annual increase of 6.39%. 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. SQM’s current payout ratio is 62%, meaning it paid out 62% of its trailing 12-month EPS as dividend.
SQM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.97 per share, which represents a year-over-year growth rate of 20.86%.
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.
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. That said, they can take comfort from the fact that SQM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).