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This is Why Vectren (VVC) is a Great Dividend Stock

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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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Vectren in Focus

Headquartered in Evansville, Vectren is a Utilities stock that has seen a price change of 10.09% so far this year. The utility is currently shelling out a dividend of $0.45 per share, with a dividend yield of 2.51%. This compares to the Utility - Gas Distribution industry's yield of 2.66% and the S&P 500's yield of 2%.

Looking at dividend growth, the company's current annualized dividend of $1.80 is up 5.3% from last year. In the past five-year period, Vectren has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.40%. 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. Vectren's current payout ratio is 65%. This means it paid out 65% of its trailing 12-month EPS as dividend.

VVC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.87 per share, which represents a year-over-year growth rate of 10.38%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, VVC 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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