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 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.
Headquartered in New York, ABM Industries (ABM) is a Business Services stock that has seen a price change of -0.12% so far this year. Currently paying a dividend of $0.22 per share, the company has a dividend yield of 2.07%. In comparison, the Building Products - Maintenance Service industry's yield is 0.71%, while the S&P 500's yield is 1.57%.
In terms of dividend growth, the company's current annualized dividend of $1.06 is up 17.8% from last year. ABM Industries has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.31%. 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. ABM Industries's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ABM expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $3.69 per share, representing a year-over-year earnings growth rate of 3.36%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious 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 ABM is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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