Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.

Gorman-Rupp in Focus

Headquartered in Mansfield, Gorman-Rupp (GRC) is an Industrial Products stock that has seen a price change of -0.17% so far this year. Currently paying a dividend of $0.18 per share, the company has a dividend yield of 2.03%. In comparison, the Manufacturing - General Industrial industry's yield is 0.09%, while the S&P 500's yield is 1.59%.

Looking at dividend growth, the company's current annualized dividend of $0.72 is up 2.1% from last year. Gorman-Rupp has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.07%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Gorman-Rupp's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.

GRC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $1.85 per share, representing a year-over-year earnings growth rate of 35.04%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. That said, they can take comfort from the fact that GRC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).