Sonic Automotive (SAH) Could Be a Great Choice

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.

Headquartered in Charlotte, Sonic Automotive (SAH) is a Retail-Wholesale stock that has seen a price change of 13.43% so far this year. The auto dealer is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.12%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.48% and the S&P 500's yield of 1.51%.

Looking at dividend growth, the company's current annualized dividend of $1.52 is up 21.6% from last year. Over the last 5 years, Sonic Automotive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 33.71%. 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. Sonic Automotive's current payout ratio is 22%, meaning it paid out 22% 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 $7.21 per share, with earnings expected to increase 28.75% from the year ago period.

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. With that in mind, SAH presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).

Zacks Names #1 Semiconductor Stock

This under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.

With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.

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This article originally published on Zacks Investment Research (zacks.com).

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