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.
Alliant Energy in Focus
Headquartered in Madison, Alliant Energy (LNT - Free Report) is a Utilities stock that has seen a price change of -5.23% so far this year. The electric and gas utility parent company is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.93%. This compares to the Utility - Electric Power industry's yield of 3.58% and the S&P 500's yield of 1.65%.
In terms of dividend growth, the company's current annualized dividend of $1.52 is up 7% from last year. In the past five-year period, Alliant Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.75%. 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. Right now, Alliant Energy's payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.
LNT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.43 per share, which represents a year-over-year growth rate of 5.19%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, LNT 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).