All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Packaging Corp. In Focus

Based in Lake Forest, Packaging Corp. (PKG) is in the Industrial Products sector, and so far this year, shares have seen a price change of 2.6%. The maker of containerboard and corrugated packaging products is currently shelling out a dividend of $1 per share, with a dividend yield of 2.83%. This compares to the Containers - Paper and Packaging industry's yield of 1.8% and the S&P 500's yield of 1.38%.

Taking a look at the company's dividend growth, its current annualized dividend of $4 is up 18.7% from last year. Packaging Corp. has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 10.31%. 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. Packaging Corp.'s current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

PKG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.18 per share, which represents a year-over-year growth rate of 41.52%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PKG 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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