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This is Why Norsk Hydro ASA (NHYDY) is a Great Dividend Stock

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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. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Norsk Hydro ASA in Focus

Norsk Hydro ASA (NHYDY - Free Report) is headquartered in Oslo, and is in the Industrial Products sector. The stock has seen a price change of -33.17% since the start of the year. The company is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 7.29% compared to the Metal Products - Procurement and Fabrication industry's yield of 0.46% and the S&P 500's yield of 1.73%.

Looking at dividend growth, the company's current annualized dividend of $0.38 is up 239.3% from last year. Norsk Hydro ASA has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 2.91%. 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. Norsk Hydro ASA's current payout ratio is 11%, meaning it paid out 11% of its trailing 12-month EPS as dividend.

NHYDY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $1.27 per share, with earnings expected to increase 60.76% 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. However, not all companies offer 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. With that in mind, NHYDY 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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