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Why Sempra (SRE) is a Top Dividend Stock for Your Portfolio

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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 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.

Sempra in Focus

Based in San Diego, Sempra (SRE - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 30.73%. The natural gas and electricity provider is paying out a dividend of $1.14 per share at the moment, with a dividend yield of 2.65% compared to the Utility - Gas Distribution industry's yield of 2.85% and the S&P 500's yield of 1.69%.

In terms of dividend growth, the company's current annualized dividend of $4.58 is up 4.1% from last year. In the past five-year period, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.18%. 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. Sempra's current payout ratio is 52%. This means it paid out 52% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SRE for this fiscal year. The Zacks Consensus Estimate for 2022 is $8.65 per share, which represents a year-over-year growth rate of 2.61%.

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.

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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SRE 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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