Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.
Essential Utilities in Focus
Essential Utilities (WTRG - Free Report) is headquartered in Bryn Mawr, and is in the Utilities sector. The stock has seen a price change of -16.17% since the start of the year. The water utility is paying out a dividend of $0.25 per share at the moment, with a dividend yield of 2.55% compared to the Utility - Water Supply industry's yield of 1.75% and the S&P 500's yield of 1.65%.
Taking a look at the company's dividend growth, its current annualized dividend of $1 is up 10.3% from last year. Essential Utilities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.81%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Essential Utilities's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WTRG expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $1.56 per share, representing a year-over-year earnings growth rate of 6.12%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, WTRG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).