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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 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.
Paychex in Focus
Paychex (PAYX - Free Report) is headquartered in Rochester, and is in the Business Services sector. The stock has seen a price change of 9.03% since the start of the year. The payroll processor and human-resources services provider is currently shelling out a dividend of $0.56 per share, with a dividend yield of 3.02%. This compares to the Outsourcing industry's yield of 0.98% and the S&P 500's yield of 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.24 is up 8.7% from last year. Over the last 5 years, Paychex has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.80%. 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. Right now, Paychex's payout ratio is 91%, which means it paid out 91% of its trailing 12-month EPS as dividend.
PAYX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.84 per share, representing a year-over-year earnings growth rate of 11.37%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 PAYX 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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Is Paychex (PAYX) a Great Dividend Play?
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 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.
Paychex in Focus
Paychex (PAYX - Free Report) is headquartered in Rochester, and is in the Business Services sector. The stock has seen a price change of 9.03% since the start of the year. The payroll processor and human-resources services provider is currently shelling out a dividend of $0.56 per share, with a dividend yield of 3.02%. This compares to the Outsourcing industry's yield of 0.98% and the S&P 500's yield of 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.24 is up 8.7% from last year. Over the last 5 years, Paychex has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.80%. 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. Right now, Paychex's payout ratio is 91%, which means it paid out 91% of its trailing 12-month EPS as dividend.
PAYX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.84 per share, representing a year-over-year earnings growth rate of 11.37%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 PAYX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).