Back to top

Image: Bigstock

This is Why Essential Utilities (WTRG) is a Great Dividend Stock

Read MoreHide Full Article

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Essential Utilities in Focus

Based in Bryn Mawr, Essential Utilities (WTRG - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 3.32%. The water utility is currently shelling out a dividend of $0.25 per share, with a dividend yield of 2.05%. This compares to the Utility - Water Supply industry's yield of 1.58% and the S&P 500's yield of 1.28%.

In terms of dividend growth, the company's current annualized dividend of $1 is up 3.1% from last year. In the past five-year period, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.07%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Essential Utilities's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, WTRG expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $1.67 per share, representing a year-over-year earnings growth rate of 5.70%.

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.

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. 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, WTRG 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).


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Essential Utilities Inc. (WTRG) - free report >>

Published in