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.
Sonic Automotive in Focus
Sonic Automotive (SAH) is headquartered in Charlotte, and is in the Retail-Wholesale sector. The stock has seen a price change of 5.57% since the start of the year. The auto dealer is currently shelling out a dividend of $0.35 per share, with a dividend yield of 2.09%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.23% and the S&P 500's yield of 1.57%.
In terms of dividend growth, the company's current annualized dividend of $1.40 is up 12% from last year. Sonic Automotive has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 35.72%. 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, Sonic Automotive's payout ratio is 24%, which means it paid out 24% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SAH for this fiscal year. The Zacks Consensus Estimate for 2025 is $6.43 per share, with earnings expected to increase 14.82% from the year ago period.
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. However, not all companies offer 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, SAH 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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Sonic Automotive, Inc. (SAH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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