This Is Why Ritchie Bros. (RBA) Is A Great Dividend Stock

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.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.

Ritchie Bros. In Focus

Ritchie Bros. (RBA) is headquartered in Burnaby, and is in the Business Services sector. The stock has seen a price change of -36.83% since the start of the year. The heavy equipment auctioneer is currently shelling out a dividend of $0.2 per share, with a dividend yield of 2.95%. This compares to the Auction and Valuation Services industry's yield of 0.22% and the S&P 500's yield of 2.66%.

In terms of dividend growth, the company's current annualized dividend of $0.80 is up 5.3% from last year. In the past five-year period, Ritchie Bros. has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.72%. 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. Ritchie Bros.'s current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for RBA for this fiscal year. The Zacks Consensus Estimate for 2020 is $1.47 per share, with earnings expected to increase 10.53% 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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, RBA 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).