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Why PSEG (PEG) is a Great Dividend Stock Right Now

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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.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

PSEG in Focus

Based in Newark, PSEG (PEG - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 6.07%. The parent company of PSEG Power and Public Service Electric & Gas Co. Is currently shelling out a dividend of $0.51 per share, with a dividend yield of 3.3%. This compares to the Utility - Electric Power industry's yield of 3.06% and the S&P 500's yield of 1.29%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.04 is up 4.1% from last year. In the past five-year period, PSEG has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.54%. 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. PSEG'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, PEG expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $3.47 per share, with earnings expected to increase 1.17% from the year ago period.

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. But, not every company offers 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. 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, PEG 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).


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