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Are You Looking for a High-Growth Dividend Stock? Southwest Gas (SWX) Could Be a Great Choice

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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.

Cash flow can come from bond interest, interest from other types of investments, and of course, 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.

Southwest Gas in Focus

Headquartered in Las Vegas, Southwest Gas (SWX - Free Report) is a Utilities stock that has seen a price change of 28.12% so far this year. The natural gas company is paying out a dividend of $0.6 per share at the moment, with a dividend yield of 2.65% compared to the Utility - Gas Distribution industry's yield of 2.61% and the S&P 500's yield of 1.42%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.38 is up 1.1% from last year. Over the last 5 years, Southwest Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.52%. 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. Southwest Gas's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SWX for this fiscal year. The Zacks Consensus Estimate for 2022 is $4.63 per share, with earnings expected to increase 11.03% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SWX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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