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Why Steelcase (SCS) is a Great Dividend Stock Right Now

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.

Steelcase in Focus

Headquartered in Grand Rapids, Steelcase (SCS) is a Business Services stock that has seen a price change of 21.85% so far this year. The office furniture maker is currently shelling out a dividend of $0.14 per share, with a dividend yield of 3.21%. This compares to the Business - Office Products industry's yield of 2.41% and the S&P 500's yield of 1.84%.

In terms of dividend growth, the company's current annualized dividend of $0.58 is up 7.4% from last year. In the past five-year period, Steelcase has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.53%. 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. Steelcase's current payout ratio is 45%. This means it paid out 45% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, SCS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.36 per share, with earnings expected to increase 13.33% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 SCS 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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