Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.

Snap-On in Focus

Snap-On (SNA) is headquartered in Kenosha, and is in the Consumer Discretionary sector. The stock has seen a price change of -1.97% since the start of the year. Currently paying a dividend of $2.14 per share, the company has a dividend yield of 2.57%. In comparison, the Tools - Handheld industry's yield is 1.93%, while the S&P 500's yield is 1.56%.

Looking at dividend growth, the company's current annualized dividend of $8.56 is up 10.9% from last year. Snap-On has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.76%. 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, Snap-On's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.

SNA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $19.76 per share, representing a year-over-year earnings growth rate of 1.28%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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, SNA 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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Snap-On Incorporated (SNA) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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