All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Sempra in Focus
Based in San Diego, Sempra (SRE - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -18.99%. The natural gas and electricity provider is currently shelling out a dividend of $1.04 per share, with a dividend yield of 3.41%. This compares to the Utility - Gas Distribution industry's yield of 3.5% and the S&P 500's yield of 1.62%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.18 is up 8% from last year. Sempra has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.68%. 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. Sempra's current payout ratio is 54%, meaning it paid out 54% of its trailing 12-month EPS as dividend.
SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.59 per share, with earnings expected to increase 11.95% from the year ago period.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SRE 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).