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Why Allete (ALE) is a Great Dividend Stock Right Now
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.
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.
Allete in Focus
Headquartered in Duluth, Allete (ALE - Free Report) is a Utilities stock that has seen a price change of -24.57% so far this year. The power company owner is currently shelling out a dividend of $0.65 per share, with a dividend yield of 5.19%. This compares to the Utility - Electric Power industry's yield of 3.2% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.60 is up 3.2% from last year. In the past five-year period, Allete has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.13%. 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. Allete's current payout ratio is 0%, meaning it paid out 0% of its trailing 12-month EPS as dividend.
ALE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $3.74 per share, representing a year-over-year earnings growth rate of 15.79%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, ALE 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).