All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Based in Kenosha, Snap-On (SNA) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 0.11%. Currently paying a dividend of $2.14 per share, the company has a dividend yield of 2.52%. In comparison, the Tools - Handheld industry's yield is 1.22%, while the S&P 500's yield is 1.5%.
In terms of 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%. 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. Right now, Snap-On's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SNA expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $20.07 per share, with earnings expected to increase 2.87% from the year ago period.
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.
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. 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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