Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Chesapeake Utilities in Focus
Chesapeake Utilities (CPK - Free Report) is headquartered in Dover, and is in the Utilities sector. The stock has seen a price change of -15.43% since the start of the year. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 2.17%. In comparison, the Utility - Gas Distribution industry's yield is 3.5%, while the S&P 500's yield is 1.62%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.76 is up 11% from last year. Over the last 5 years, Chesapeake Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.44%. 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. Right now, Chesapeake Utilities's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.
CPK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.08 per share, which represents a year-over-year growth rate of 11.48%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CPK 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).