Why Snap-On (SNA) is a Great Dividend Stock Right Now

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

Snap-On in Focus

Based in Kenosha, Snap-On (SNA) is in the Consumer Discretionary sector, and so far this year, shares have seen a price change of 5.83%. The tool and diagnostic equipment maker is paying out a dividend of $1.42 per share at the moment, with a dividend yield of 2.49% compared to the Tools - Handheld industry's yield of 0.67% and the S&P 500's yield of 1.59%.

Looking at dividend growth, the company's current annualized dividend of $5.68 is up 11.2% from last year. In the past five-year period, Snap-On has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.71%. 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. Snap-On's current payout ratio is 36%, meaning it paid out 36% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SNA for this fiscal year. The Zacks Consensus Estimate for 2022 is $16.14 per share, representing a year-over-year earnings growth rate of 8.18%.

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.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 SNA is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.