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Why Imperial Oil (IMO) is a Great Dividend Stock Right Now

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.

Imperial Oil in Focus

Headquartered in Calgary, Imperial Oil (IMO - Free Report) is an Oils-Energy stock that has seen a price change of 38.89% so far this year. The oil and gas and petroleum products company is paying out a dividend of $0.54 per share at the moment, with a dividend yield of 2.14% compared to the Oil and Gas - Integrated - Canadian industry's yield of 3.07% and the S&P 500's yield of 1.46%.

Looking at dividend growth, the company's current annualized dividend of $1.07 is up 29.9% from last year. Imperial Oil has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.33%. 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. Imperial Oil's current payout ratio is 30%, meaning it paid out 30% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for IMO for this fiscal year. The Zacks Consensus Estimate for 2022 is $5.92 per share, with earnings expected to increase 112.95% 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, IMO presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).


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